Supercharge your dividend yield with margin lending

Increased buying power

Margin lending lets you buy more securities (stocks, ETFs, bonds and stock options) by using the assets in your Margin Lending Account as collateral. This means you can invest in larger positions than what your current cash balance would otherwise allow.

If stock A has 75% collateral value, every 100 shares of stock A you purchase allows you to buy 75 more shares using the same amount of eligible collateral in your account. The 75 shares purchased would then offer yet another 75% of collateral, which would allow you to purchase 56 more shares of stock A. Eventually, this collateral offered to your purchased shares will lead you to be able to purchase 400 shares of Stock A.

A quick way to calculate your potential buying power would be:
100 shares / (1-collateral value)
= 100 shares / (1 – 0.75)
= 400 shares.

Potentially higher returns

Scenario 1: Trade with Cash

Assume you invest $15,000 into share A at $1.50 per share. You would be able to purchase 10,000 shares. If you sold all the shares at $1.70, you would receive $17,000. Your gross gain would be $2,000 and your gross return will be 13.33%*.

Scenario 2: Trade with Margin Lending Account

Assume you invest $15,000 into share A at $1.50 per share and share A has a collateral value of 75%. Without margin lending, you will be able to purchase 10,000 shares ($15,000/$1.50). However, with margin lending, you will have 4x buying power, and you would be able to purchase 40,000 shares of share A. If you sold all the shares at $1.70, you would receive $68,000. After returning your loan of $45,000, your gross gain in this scenario would be $8,000 and your gross return will be 53.33%*.

However, you may experience higher losses with leverage.

Scenario 1: Trade with Cash

Assume you invest $15,000 into share A at $1.50 per share. You would be able to purchase 10,000 shares. If you sold all the shares at $1.30, you would receive $13,000. Your gross loss would be $2,000 and your gross return would be -13.33%*.

Scenario 2: Trade with Margin Lending Account

Assume you invest $15,000 into share A at $1.50 per share and share A has a collateral value of 75%. Without margin lending, you will be able to purchase 10,000 shares ($15,000/$1.50). However, with margin lending, you will have 4x buying power, and you would be able to purchase 40,000 shares of share A. If you sold all the shares at $1.30, you would receive $52,000. After returning your loan of $45,000, your gross loss in this scenario would be $8,000 and your gross return will be -53.33%*.

*Returns shown here are for illustration purposes only. Returns may vary and do not take into consideration any transaction/trading and margin financing costs.

Imagine you have SGD 5,000 in available capital and already have an active Margin Lending Account. You want to buy stock A, which currently offers a 12-month dividend yield of around 5.5%.

With stock A offering 75% collateral value, you can use SGD 5,000 to purchase up to SGD 20,000 worth of stock A. But let’s say you take a slightly more conservative approach and opt for 3x leverage instead - using your SGD 5,000 and borrowing SGD 10,000 via margin lending at a 3% interest rate to buy a total of SGD 15,000 worth of stock A.

Here’s how the math works:

• Total shares bought: SGD 15,000 worth
• Annual dividends received: SGD 825 (5.5% on SGD 15,000)
• Margin interest cost: SGD 300 (3% on SGD 10,000)
• Net dividend income: SGD 525
• Return on your original SGD 5,000: 10.5% net yield

What to watch: the risks

While the math is compelling, margin lending is not free money. Here are a few important caveats:

• Dividend cuts: A reduction in stock A’s payout could reduce or eliminate the income cushion.
• Share price risk: If the price drops significantly, you may face margin calls or need to top up your account.
• Interest rate hikes: Higher borrowing costs can erode your yield spread.

Finding the optimal leverage to take versus the risks

• In the table below, you can see that even though a higher leverage factor increases your dividend yield of stock A, it can also increase your risk of a partial stop out should the stock price falls. Ultimately, it is important to pick the appropriate level of leverage that suits your risk appetite.

The total amount you can borrow depends on the collateral value of eligible assets in your account.

Each eligible asset has a risk rating from 1 (lowest assessed risk) to 6 which is used to determine the collateral value of the asset. As an example, a stock rated 1 can be collateralised for 75% of the market value of the position. You can find the risk rating and associated collateral value of eligible assets under Trading Conditions > Instrument or in the Collateral column available on the platforms.

There are two ways you can fund your Margin Lending Account:

1. You can do a sub-account transfer by moving cash from your default trading account to your Margin Lending Account by going to Profile> Deposits and Transfers > Sub-account Transfer.
2. You can fund directly from your bank account to your Margin Lending Account by setting up an Electronic Direct Debit Authorization (eDDA) or via Bank Transfer by going to Profile> Deposits and Transfers> Deposit Funds.

Please make sure to direct your incoming deposits specifically to one of your sub-account(s) in your Margin Lending Account because your margin loan utilisation is supported only by cash/eligible collateral held in your Margin Lending Account's sub-account(s). Your positions and securities held in your default trading account will not automatically support your trading positions in your Margin Lending Account (and vice versa). You may refer to more details at: Margin Lending Account Terms and Funding instructions.

You must keep your 'Margin Loan Utilisation' below 100% in your Margin Lending Account to avoid a 'margin call’. A “margin call” is an automated stop-out where Saxo cancels open orders and closes open positions in your account(s) – (Margin Lending Account and/or default trading account). As the partial stop-out feature is enabled for the Margin Lending Account, Saxo may reduce your positions in your Margin Lending Account in a phased approach during a 'margin call’ to bring your margin loan utilisation back below 100%. You may refer to the summary of relevant risks in relation to partial stop-out here.

Please note that you may experience a margin call on the Margin Lending Account even though it appears you may have sufficient collateral held on your default trading account (and vice-versa) as your Margin Lending Account and default trading account are subject to separate and distinct margin requirements. Refer to < How do I fund my Margin Lending Account? > above for more details.

Yes, margin utilisation is calculated separately for the default account and the Margin Lending Account. In the default account, this is called margin utilisation (for CFD/FX/Futures/Options), while in the Margin Lending Account, this is called margin loan utilisation.

Imagine a scenario where a client has $10,000 in the default account and $10,000 in the Margin Lending Account:

If you trade margin products (CFD/FX/Futures/Options) in the default account, the $10,000 in the Margin Lending Account cannot be used to support the required margins for trading these products.

In a similar way, the $10,000 in the Margin Lending Account can only be used to support the purchase of eligible securities in the Margin Lending Account and cannot be shared with the default account. Collateral in the default account will not support trades in the Margin Lending Account.

If you want collateral in default account to support margin lending trades, you will have to do a sub-account transfer to move the cash and stock positions to the Margin Lending Account. This can be done via the platform under Profile> Portfolio Transfer> Sub-account Transfer for positions and Profile > Sub-account transfer for cash.

When taking delivery of stock options, you must pay for the shares received. If you lack sufficient cash, margin lending enables you to use your existing eligible assets in your Margin Lending Account as collateral to obtain a margin loan to take delivery. This process happens automatically. The options must also be traded in the Margin Lending Account and there must be sufficient collateral in the Margin Lending Account to support the margin loan.

The partial stop-out feature is enabled on the Margin Lending Account. This means that during a margin call, Saxo may reduce your positions to bring your margin loan utilisation back below 100%.

1. Closing your stock option positions if the option markets are open.
2. If the option markets are closed, or if this is insufficient, we will close the positions on your cash products (stocks. ETFs and bonds), starting with the positions holding the highest market value.