Lombard loan (also Margin Lending) allows you to take a margin loan to invest in stocks, ETFs, bonds, and mutual funds using your cash and securities as collateral to leverage your positions. Additionally, you can use this facility to withdraw cash and use the borrowed cash for purposes other than investing.
How does Lombard Loan work?
Lombard loan lets you borrow money for investing in a wide range of assets such as stocks, ETFs, bonds and mutual funds by putting up eligible instruments in your account as collateral. This means that you can add leverage to your investing and take positions larger than your current cash balance and/or holdings.
In short, the Lombard loan increases your buying power when investing in securities. The amount you can borrow is determined by the collateral value, which is calculated based on the market value of your stocks, bonds, ETFs and mutual funds, after applying a haircut. The haircut reflects adjustments for risk factors, such as volatility and liquidity of the instruments.
How do I enable Lombard Loan?
If you already have an account, you can enable Lombard loan in your trading platform, under My profile > Your account > Lombard Loan
What does buying power mean?
Your buying power is the amount of money available for investing.
Saxo allows a percentage of your investment in eligible assets to be used as collateral to borrow money for increasing the size of your position. That way, your buying power increases. It is calculated as a function of your available cash and the collateral value of eligible assets in your account.
The collateral value of an eligible instrument depends on the risk rating of that individual instrument. The risk rating takes into account metrics such as volume, liquidity, as well as market risk. You can find the collateral value of eligible instruments under Trading Conditions > Instrument or in the Collateral column available on the Saxo platform. You can also see the collateral value of a specific instrument on the trade ticket in the platform.
What are the financing terms? How is interest charged?
When a trade is financed by the Lombard loan, either in full or in part, you will incur a Lombard loan interest rate on the borrowed amount. The loan amount is assessed daily based on the net cash balance on each Lombard loan account in the respective currency. The loan interest is calculated daily and begins accruing from the settlement date of the Lombard position. It is added to the loan amount at the beginning of each calendar month.
Below is an illustration (1) of a CHF 100'000 loan at a rate of 2% : Saxo Ask Rate of 0% and add-on rate of 2% (2), (Lombard Loan rate for Classic clients):
You can find the Lombard loan interest cost under Trading Conditions > Trading rates on eligible assets. You will also find a breakdown of the charges to your account in the Margin Lending Interest Details report available on the platform.
Do note that interest will be charged on any negative sub-account cash balances, even if the aggregate cash balance on all your sub-accounts is positive.
1) This example is used for illustrative purposes only and is without prejudice to any of Saxo’s rights as per the terms and conditions stipulated under the Lombard loan Agreement. In the event of any inconsistency, the provisions of the Lombard loan Agreement and/or General Business Terms shall prevail.
2) Classic rate for a loan in CHF. Please see rates for other account tiers and currencies in the "loan rates" section above on this page.
What happens if I trade in a currency other than my account currency using Lombard Loan?
Before placing any order via the Trading Platform, please verify the sub-account that the order is to be placed under. Our conversion rate will apply to any trades that are placed in a different currency than the account currency of the sub-account used. You can find more information about our currency conversion fee here and more information about opening a currency sub-account here.
Please note that you will be charged interest on any outstanding Lombard loan, even if the aggregate cash balance on all your sub-accounts is positive.
How much can I borrow?
The total amount you can borrow depends on the collateral value of eligible assets in your account.
Each eligible asset has a rating from 1 (lowest assessed risk) to 6 which is used to determine the collateral value of the asset. You can find the rating and associated collateral value of eligible assets under the 'Instrument' tab of the Trading conditions. The rating of the stock can change over time hence the collateral value can change accordingly.
What happens if I exceed the loan limit?
In general, you need to monitor and ensure that your margin and loan utilisation remains below 100% at all times.
Prior to your margin and loan utilisation reaching 100%, you will receive margin calls notifying you that your margin and loan utilisation has reached 75% (or higher).
In the event of a margin call, you will be asked to provide additional collateral by adding funds to your account or to reduce your negative cash balance/margin positions.
Should you not take the actions required, Saxo may realize the collateral, close some or all of the open margin positions in your account(s) to reduce your margin and loan utilisation. Please be aware that, in such cases, all open orders will be cancelled. You can view your margin and loan utilization at any time in the platform under Portfolio Overview (of your main account) > Initial margin available tab. Your margin details can also be seen under Account Details (i).
Will my loan utilization be reduced if I close my profitable margin positions (e.g. FX, CFDs, Futures)?
Closing profitable margin positions will reduce your loan utilization but this will not happen immediately. Your loan utilization will be reduced once the profits are reflected in cash after the daily upload the next day.
Will my loan utilization be reduced if I sell my stocks or ETFs?
Your collateral utilization will be reduced immediately if you have sold your stocks, ETFs, mutual funds, or bonds.
How long will it take for Lombard Loan to be enabled after I have opted in?
Your Lombard loan will be enabled immediately after you have opted in.
Can I enable Lombard Loan if there is an overall negative balance in my account?
You can enable the Lombard loan facility even if your account has a negative balance in one or more of your sub-accounts. Note, however, that this will incur immediate interest accruals on the account(s) with a negative cash balance that is enabled for Lombard loan.
Can Lombard Loan be enabled if I do not have an account in CHF?
Lombard loan can be enabled on sub-accounts in all currencies but you will need to have at least one account in CHF for Lombard loan to be enabled. By enabling Lombard loan on the platform, all your eligible sub-accounts will be enabled for Lombard loan automatically.
Will the margin level for trading leveraged products (e.g. CFD, FX and Futures) be affected if I enable Lombard Loan on my account?
If you enable Lombard loan, the margin available for trading leveraged products can be reduced if you have negative cash or unrealized profit/loss from leveraged positions in one or more sub-accounts. This is due to the additional FX haircut applied on the negative cash and unrealized profit/loss once Lombard loan is enabled on your account.