Collateral is an asset that a borrower offers to a lender to secure a loan. Collateral can be cash, stocks, bonds, or other securities in your portfolio. The lender (Saxo) uses this collateral to ensure that you can repay the loan.
The collateral value is the amount of your assets that can be used as security for a loan. This value is not always equal to the market value of the assets. Saxo applies a "haircut" to the market value to determine the collateral value. For example, if you have stocks worth $1,000 and the haircut is 30%, the collateral value would be $700.
Saxo does periodic reviews on instruments so their collateral value could change according to the instrument rating change, especially when the market is volatile.
What is margin lending?
Margin lending lets you borrow money for investing in a wide range of securities such as stocks and ETFs by putting up eligible assets 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, margin lending increases your buying power when investing in eligible securities. The margin loan acts as a simple credit facility, where the amount you can borrow is determined by your financial situation and the collateral value of the eligible assets in your account.
Read more on how to enable margin lending and how it works
What is margin trading?
Margin trading is another tool that allows you to amplify your potential returns, though it comes with increased risk. It enables you to amplify the potential of your trade by using borrowed funds to trade securities, also known as leveraging or gearing. This allows you to get a bigger exposure than your initial capital would.
On SaxoTraderGo/SaxoTraderPRO, you can engage in margin trading through different instruments including Contracts for Difference (CFDs), Options, FX, and Futures enabling you to open both long and short positions.
Where can I see the collateral value for an instrument?
Navigate to the trading conditions by clicking the "i" > Click on the Instrument tab > See Collateral value as shown below:
If you hold a position worth USD 10,000 with a collateral value of 75%, the collateral value of the position is USD 7,500.
Can cash products be used as collateral for margin trading?
Saxo Capital Markets allows some bonds/stocks/ETFs to be used as collateral for margin trading. The collateral value available for margin trading depends on the rating of the product, for example, bond as outlined below:
|
Definition*
|
Margin Collateral
|
|---|---|
|
Highest Rating (AAA)
|
92%
|
|
Very High Quality (AA)
|
90%
|
|
High Quality (A)
|
80%
|
* as rated internally by Saxo
Lower rated bonds will not be accepted as collateral for margin trading.