Margin Financing example
Supposing that you have in your possession shares to the value of Euro 70.000 which can be used to form the basis of the collateral portfolio. By using a part of the amount of the available credit extended to you, you could be able to buy shares to a value of Euro 30.000, thus creating a collateral portfolio with a total mark to market value of Euro 100.000.
Accordingly, by borrowing from Alpha Finance, you are able to create a portfolio with a value greater than your own personal liquidity capacity, thus leveraging your rate of return.
In the following table you can see how the leverage mechanism contributes to the profits and losses derived from the “Margin Portfolio” and how it can lead to the achievement of a rate of return which is greater than the corresponding change in the price of shares held in your “Margin Portfolio”.
Of course, the corresponding potential losses will also exceed the level of any fall in share prices.
|
Change in Share Prices
|
Resulting Value of Margin Portfolio in Euros
|
Credit in Euros
|
Profit or Loss on Initial Capital in Euros 70.000
|
Ptofit or Loss Percentage
|
| 50% |
150.000 |
30.000 |
50.000 |
71,4% |
| 25% |
125.000 |
30.000 |
25.000 |
35,7% |
| 10% |
110.000 |
30.000 |
10.000 |
14,3% |
| 0% |
100.000 |
30.000 |
0 |
0% |
| -10% |
90.000 |
30.000 |
-10.000 |
-14,3% |
| -25% |
75.000 |
30.000 |
-25.000 |
-35,7% |
| -50% |
50.000 |
30.000 |
-50.000 |
-71,4% |