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June 6, 2023
Posted on June 06, 2023
Planning and Guidance, Tailored To Your Life and Goals
Tuesday Takeaway
Posted on July 14, 2015
CNN.com. Barron’s explained how margin works:
“In China, a typical investor can borrow $1.25 for every dollar of cash she has, giving her what China calls a “guarantee ratio” of 180 percent, or $2.25 (cash and stock bought on margin) divided by $1.25 (loan value). But, as her stock loses value, the guarantee ratio also falls. At 150 percent, the broker will start to issue margin calls. When the ratio hits 130 percent, the brokerage will force the liquidation of the position to meet the loan.”
About 80 percent of the investors in China’s markets live in China. Many have suffered significant losses as markets have moved lower. The BBC reported China’s market regulator responded to the market downturn by making it even easier for people to borrow money to invest. Apparently, the hope is small investors will put more money in stocks. Regulators also banned investors who hold 5 percent or more of a company’s stock from selling their shares for six months. By the middle of last week, Chinese markets had stopped losing value. Only time will tell whether they have truly stabilized. Closer to home, the New York Stock Exchange (NYSE) suffered a computer glitch that halted trading for several hours last week. The NYSE tweeted, “The issue we are experiencing is an internal technical issue and is not the result of a cyber breach.”