MARGIN TRADING PRIMER

FAQs

What is the FirstMetroSec Margin Account?
  • The FirstMetroSec Margin Account allows you to borrow additional funds from FirstMetroSec to enable you to buy more stocks.  
 
 
How does the FirstMetroSec Margin Account differ from a regular Cash Account?
 
  • If you have a regular Cash Account, you need to have available cash to be able to buy stocks. If you don’t have cash, you cannot buy stocks.
 
  • On the other hand, if you have a Margin Account, even if you don’t have cash left in your portfolio, you can still buy more stocks by borrowing additional funds from FirstMetroSec as long as you meet the requirements and you have stocks in your portfolio which you can use as collateral or security for the amount you would like to borrow.
 
 
How can I have a FirstMetroSec Margin Account?
   
  • Make sure that you meet the "Initial Equity Requirement” of at least Php200,000, which can be in the form of cash, stocks, or a combination of both cash and stocks
 
  • Note that, aside from cash, only stocks that are eligible as collateral, called “Marginable Stocks”, can form part of the initial equity.
 
  • You will receive a notification from First Metro Securities once your application for a Margin Account is approved.
 
 
 
What are “Marginable Stocks”?
 
  • Marginable Stocks are those that FirstMetroSec accepts as collateral for the amount borrowed under the Margin Account.
 
  • Note that only Marginable Stocks can be:
    • Included to form part of initial and subsequent minimum equity requirement
    • Used as collateral or security for the amount borrowed
    • Bought using additional funds borrowed from FirstMetro Sec
 
  • As of March 2018, the following are the Marginable Stocks for the FirstMetroSec Margin Account:
 
STOCK CODE STOCK CODE STOCK NAME MARGIN RATING
ALI Ayala Land, Inc. 100%
AC Ayala Corp. 100%
AEVI Aboitiz Equity Ventures, Inc. 100%
AGI Alliance Global Group, Inc. 100%
AP Aboitiz Power Corp. 100%
BDO BDO Unibank 100%
BLOOM Bloomberry Resorts Corp. 100%
BPI Bank of the Phil. Islands 100%
DMC DMCI Holdings, Inc. 100%
FGEN First Gen Corporation 100%
FMETF First Metro Exchange Traded Fund 100%
GLO Globe Telecom, Inc. 100%
GTCAP GT Capital Holdings, Inc. 100%
ICT Int'l Container Terminal Svcs. 100%
JFC Jollibee Foods Corp. 100%
JGS JG Summit Holdings, Inc. 100%
LTG LT Group, Inc. 100%
MBT Metropolitan Bank and Trust Co. 100%
MEG Megaworld Corp. 100%
MER Manila Electric Company 100%
MPI Metro Pacific Investments Corp. 100%
NIKL Nickel Asia Corp. 100%
PCOR Petron Corporation 100%
PGOLD Puregold Price Club, Inc. 100%
RRHI Robinsons Retail Holdings, Inc. 100%
SCC Semirara Mining and Power Corp. 100%
SECB Security Bank Corp. 100%
SM SM Investments 100%
SMPH SM Prime Holdings 100%
TEL PLDT Co. 100%
URC Universal Robina Corp. 100%
VLL Vista Land and Lifescapes 100%
 
 
  • Note that FirstMetroSec reserves the right to add/remove stocks from the list should they fail to meet the criteria to be eligible as Marginable Stocks.
 
 
 
How much can I borrow?
  • If you have a Marginable Stock in your portfolio, you can borrow as much as 100% of the value of that stock.
 
  • Example Number 1: If you have Php100,000 worth of Metrobank (MBT) shares in your portfolio, and since MBT is among the marginable stocks, your FirstMetroSec Margin Account allows you to borrow as much as Php100,000 additional funds using your MBT shares as collateral for the loan.
 
  • Example Number 2: If you have Php100,000 worth of Metrobank (MBT) shares and Php100,000 worth of Ayala Land (ALI) shares in your portfolio, and since MBT and ALI are among the marginable stocks, your FirstMetroSec Margin Account allows you to borrow as much as Php200,000 additional funds using your MBT and ALI shares as collateral for the loan.
 
  • Example Number 3: If you have Php100,000 worth of Metrobank (MBT) shares and Php100,000 worth of Waterfront Philippines (WPI) shares in your portfolio, and since MBT is a marginable stock while WPI is not among the marginable stocks, your FirstMetroSec Margin Account allows you to borrow as much as Php100,000 additional funds since only your MBT shares are acceptable as collateral for the loan.
 
 
How much does First Metro Sec charge as interest on the amount borrowed?
 
  • The interest rate is 0.9% per month + 12% VAT, which is subject to change without prior notice.
 
  • The amount of interest that you have to pay is calculated and accumulated daily based on the balance of the loan amount at the end of the day.
 
  • FirstMetroSec deducts the interest charges from your account at the end of each month.
 
  • You should review your billing statements carefully to stay informed of the amount of interest you are paying for your margin loan. Interest expense on a margin loan can materially reduce the rate of return on your investment.
 
 
Is there a period of time within which I should pay the amount borrowed?
 
  • None. The borrowed amount can be kept for as long as you want.
 
  • Note that interest charges accumulate over time as long as the loan is outstanding.  
 
  • When a stock is sold, the proceeds are used to pay the outstanding loan balance first.
 
What is the equity level maintenance requirement?
 
  • To keep your credit line open, your equity must be at least 50% of the value of the marginable stocks in your portfolio.
 
  • Equity is the value of marginable stocks in your portfolio minus the outstanding loan balance.
 
  • This means that if you have P2 million worth of stocks in your account, your loan balance should not exceed P1 million.
 
  • Sometimes, the value of your equity falls especially when the market price of the collateral declines. In this case, if your equity falls below 50%, then you will receive either a “Margin Alert” or a “Margin Call”.
 
 
What is a “Margin Alert”?
  • If your equity falls below the minimum maintenance requirement of 50%, no need to worry yet.
 
  • A 10% ‘buffer’ is in place to assist you in managing small market movements.
 
  • At this point, you will only receive a “Margin Alert” which is a notification that your equity has fallen below the required minimum.
 
 
What is a margin call?
  • If your equity falls below the 40% threshold, you will receive a “Margin Call”
 
  • For example, if you have Php100,000 worth of Metrobank (MBT) shares, you can borrow as much as Php100,000 using your MBT shares as a collateral since MBT is a marginable stock
 
  • Let us say you want to buy Ayala Land (ALI), which is also a marginable stock.
 
  • With your FirstMetroSec Margin account, you borrowed Php100,000 and bought shares of ALI.
 
  • At this point,
    • The value of your Marginable Stocks is Php200,000 --- Php100,000 worth of MBT and Php100,000 worth of ALI
    • Since you borrowed Php100,000, your equity is 50% (Php100,000 / Php200,000)
 
  • Assuming on the 2nd day, market price of ALI remains the same but the price of MBT falls by 5% which caused its value to decline to Php95,000.
 
  • At  the end of the 2nd day,
    • The value of your Marginable Stocks is Php195,000 --- Php95,000 worth of MBT and Php100,000 worth of ALI
 
  • Since the outstanding loan amount is Php100,000, your equity is reduced to Php95,000 (Php195,000 minus Php100,000 loan), or 48.71%  of the value of marginable stocks (Php95,000 / Php195,000), which is less than 50% but still above 40%, you will receive a “Margin Alert
 
  • Assume further that, on the 3rd day, the market price of both ALI and MBT fell which reduces the value of ALI to Php80,000 and MBT to Php80,000.
 
  • At  the end of the 3rd day,
    • The value of your Marginable Stocks is Php160,000 --- Php80,000 worth of MBT and Php80,000 worth of ALI
 
  • Since the outstanding loan amount is Php100,000, your equity is just Php60,000 (Php160,000 minus Php100,000 loan), or 37.50% (Ph60,000 / Php160,000), which is less than 40%, you will receive a “Margin Call”.
 
 
What happens when I get a “Margin Call”?
  • When you receive a “Margin Call”, you will be required to bring your equity back above the 50% minimum requirement within 5 trading days.
 
  • You can bring your equity back above the 50% minimum requirement by:
    • Depositing sufficient cash into your account
    • Selling sufficient stocks to pay down the loan
    • Infusing more marginable stocks in your account
 
  • If you fail to restore equity above the minimum requirement, First Metro Securities will sell stocks in your account sufficient to cover the deficiency. If your stocks are sold off after prices have plunged, then your losses are locked in and you lose your chance to participate in any future rebounds that may take place.
 
 
What is margin suspension?
  • Once your equity level falls below 30%, your margin trading privileges shall automatically be suspended. If your margin account is suspended, sufficient amount of stocks will be sold to pay off your loan and your account is then converted into a regular Cash Account.
  • In case the proceeds from the sale of the securities in your account are not sufficient to fully cover the loan, you remain personally liable for the loan balance, as well as for any cost incurred in collecting that amount.
 
 
What are the risks of having the FirstMetroSec Margin Account?
 
  • Margin Trading is a double-edged sword.
 
  • While gains are amplified in bull markets, substantial losses can mount quickly in bear markets. If portfolio value falls considerably, additional equity might be demanded on short notice or else face a force sale. Once stocks are sold after prices have plummeted, you’ve lost out on the chance to recoup your losses.
 
 
 
How do you protect yourself from the risks associated with having a FirstMetroSec Margin Trading account?
 
  • Buying on margin is a risky endeavor, especially for investors new to the concept. To protect yourself, here are the things you need to do:
    • Understand what happens if the price of the securities purchased on margin declines.
    • Know that you are charged interest for borrowing money and that will affect the total return on your investments.
    • Be aware that not all stocks can be used as margin or security for the loan.
    • Ensure that trading on margin is appropriate for you in light of your investment objectives, risk tolerance, and personal circumstances.
 
 
How can I manage risk?
 
  • Diversify
    • Diversify your portfolio to reduce your exposure to the price movements of any single activity
  • Monitor your loan
    • Monitor your portfolio regularly to make sure you don’t fall below the required equity level
  • Check your suitability
    • Make sure your investments and your current level of borrowing is appropriate for your risk profile, financial resources and investment objective
  • Don’t be fully leveraged
    • Borrow less than the maximum amount allowable in your account to avoid the risk of a margin call