Margin calls double on market rollercoaster

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Appetite for debt-fuelled sharemarket speculation has fallen sharply as higher interest rates force investors to re-evaluate the economics of margin loans.

P 500 has fallen 17.4 per cent since the start of the year, while bond prices, which have traditionally acted as a hedge against sharemarket downturns, are also sharply lower.

“So if the interest cost is going to be 8.5 per cent, then most of that return is going to the bank rather than you, so you end up taking a lot of risk, but you actually don’t get much of the return.” In one of the most high-profile margin calls of the pandemic-inspired market crash, Mark Fortunatow, the chief of listed Australian technology company Spacetalk, was forced to sell shares totalling $225,189 in his own company after being asked to cover his losses.

 

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Some wisdom for anyone contemplating a margin loan.

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