Key risks associated with margin lending and trading
This document contains important information about the key risks associated with margin lending and trading. You should carefully consider your financial situation and consult your independent professional advisors as to the suitability of your situation prior making any investment.
Margin lending and trading means purchasing assets that are eligible for margin trading using a loan extended to you by Saxo Capital Markets.
When you buy eligible securities, you may pay for the securities either in full or you may choose to borrow part of the purchase amount from Saxo Capital Markets as a margin loan. Should you choose to take out a margin loan, the securities you have bought will act as collateral for the loan. There are additional factors to take into consideration when margin trading as your risk profile will be different to the case where you pay for securities in full.
Key risks for your consideration
Margin lending provides greater market exposure
Using a margin loan allows you to purchase more securities than would be possible without the loan. Therefore, your exposure to changes in the prices of the underlying security or securities will be larger. Your potential losses, in the case that the underlying(s) decease in value will be commensurately larger.
You may lose more money than you deposit
When margin trading, it is necessary to deposit initial collateral in the form of cash or fully paid securities. The deposit is necessary as Saxo Capital Markets will not lend you the full value of the securities you wish to purchase. Taking out a margin loan will allow you to buy securities, the value of which will exceed your initial deposit. Consequently, you will have greater exposure to the price movement of purchased securities. A decline in the value of the purchased securities may result in losses in excess of your initial deposit and may require you to deposit additional funds or collateral to avoid a forced sale of the margin securities or other securities in your account.
Standing authority - title of transfer, rehypothecation, repledging etc.
As part of the terms and conditions set out in the margin client agreement you will grant Saxo Capital Markets a standing authority and thereby the right to title of transfer (i.e. sell), pledge, hypothecate, assign, invest, use, commingle or otherwise dispose of, and otherwise use in its business, any margin securities. This means that margin securities and collateral could e.g. be lent to or deposited with third parties, those third parties would e.g. have lien or charge on your margin securities or collateral. Although Saxo Capital Markets is responsible to you for your securities or margin securities lent or deposited under the authority, a default by it could result in the loss of you margin securities or collateral.
Ensure you fully understand the standing authority provided to Saxo Capital Markets in the terms and conditions for margin client agreement prior to using the services contemplated in the margin client agreement. If you do not require margin facilities or do not wish to grant a standing authority (as described above) you should not enter into the margin client agreement, instead you should ask Saxo Capital Markets for a cash account without margin facilities.
Saxo Capital Markets may initiate the sale of securities or other assets in your account without notice
If the value of collateral in your account falls below the maintenance margin requirements, Saxo Capital Markets can sell the securities in the margin account, or any other securities held by the firm, to cover the margin deficiency. Saxo Capital Markets does not have to contact you prior to liquidating securities in your account.
Losses can exceed the collateral value in your account
If the value of securities in you margin account decreases, so does the value of the collateral supporting your loan. Should you be subject to forced liquidation of your positions due to a margin deficiency, you will be responsible for any cash shortfall on the account that might arise after the sale.
In case of a margin call you do not have any discretion to choose the assets to be liquidated
In the event of a forced sale, Saxo Capital Markets will sell all of your securities (if you have elected full stop-out) or a pro-rated portion of your securities (in the case you have elected partial stop-out). You will not be able to decide which securities are sold, what quantities will be sold and in what order the securities will be sold. Moreover, you will remain liable for any resulting deficit in your account and interest charged on your account
Saxo Capital Markets may increase its own maintenance margin requirements at any time without notice
Saxo Capital Markets constantly monitors its margin requirements and may adjust them at any time, in which case the changes can take effect immediately. It is your responsibility to ensure that your account has sufficient collateral to meet Saxo Capital Market’s margin requirements at all times.
You are not entitled to an extension of time on a margin call
IMPORTANT! This document only sets out selected key risks associated with margin lending and trading and is subject to the General Disclaimer on Saxo Capital Market’s website. Before using the services contemplated under the margin client agreement, please read the terms and conditions carefully including, but not limited to, the general business terms and especially the risk disclosures set out in the schedule thereto.