Margin lending terms

Rather than obtain an equity access loan from your bank an alternative is to use the property concerned as direct security for the margin loan. Currently Leveraged Equities is the only lender who provides this facility and it is called 'PowerHouse'. They value the property every 5 years and extend margin accordingly. They will allow you to borrow up to 80% of the current value of the real estate, providing the property value does not exceed $500,000. For properties valued in excess of $500,000, the maximum you may borrow is 70% of the current value. The advantage is that you are dealing with a single institution and both your property and shares and/or managed funds provide collateral in the one account. The property does not fluctuate as much and a lower rate of interest applies.

The risk is that the property is at risk if in the event of a serious margin call. See Leveraged Equities for further details.

Short Selling

Short-selling involves selling shares that you do not own in the belief that you will be able to buy them back at a cheaper price at a later date - you sell before you buy. Your profit is the difference between the net sale and purchase price as in a normal trade.

Using Short-selling is relatively easy. The lender will arrange for you to borrow the shares for a small fee, once they have confirmed that the shares are available. It is then a matter of you selling them through a broker of your choice.

You should note that short-selling shares involves potentially unlimited risk as the share price may rise indefinitely. It is recommended that you seek your own independent legal, financial and taxation advice.

The only Margin Lender that provides this facility is Leveraged Equities and the service is called ShortShare. Warrants

• are derivative securities traded on ASX;
• include a no-obligation entitlement to either acquire or relinguish an interest in another investment asset, like shares or units in a trust;
• have a set life during which they exist - a time period - that must always be considered;
• serve a particular purpose that concentrates on important aspects of investing in the related assets over a period of time: for example, to pursue a short term trading opportunity, to maximise the income potential or to maximise the capital gain that can be earned.

You need to understand the risks of trading or investing in warrants and what makes them different from the related investments on which they are based.

There are a number of Margin Lenders who lend against warrants. They are:

• Salomon Smith Barney
• Challenger
• JB Were
• BT
• Merrill Lynch

Options

An option is a contract between two parties giving the taker (buyer) the right, but not the obligation, to buy or sell a parcel of shares at a predetermined date. To acquire this right the taker pays a premium to the writer (seller) of the contract.

There are two types of options available - call options and put options.

Call options give the taker the right, but not the obligation, to buy the underlying shares at a predetermined price, on or before a predetermined date.

On the other hand, the writer of the call option is obliged to deliver if the taker exercises the option. For accepting this obligation the writer received and keeps the option premium whether the option is exercised or not.

Online Services

There are a few lenders who provide an online facility where you can go into their internet site and:

Authorise your broker and financial adviser to have "information only" access to your account position summary. This enables your adviser to keep up-to date with your financial position and help you to make the right investment decisions.

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