Credit Balance (CB) or Margin Financing is a form of borrowed funds, or ‘financial leverage or debt’ provided to investors to finance the purchase of securities. Investors are required to put up cash or collateral in the form of stocks with the broker before trades can be initiated.

CB account also gives investors more convenience when it comes to securities settlements. Normally, investors must settle securities transactions within the next three business days of trade (T+3), but in margin financing scheme, these settlement arrangements will be made for you after trades. Outstanding cash balance in your CB account will be first drawn to pay for securities trades with the remaining shortfall being financed by borrowed funds. In the event that the value of cash collateral is higher than the purchase price of securities, loan will not be drawn, and you will also earn interest on the credit balance in your account.

Suppose that you deposit THB100,000 into your CB account and wish to buy securities ‘A’ with initial margin set at 50%, it means that your trade limit is THB200,000. Half of the investment position, or THB100,000 is being self-financed with your own capital and the balance THB100,000 with borrowed money. Debit interest will be charged on borrowed funds and the broker retains custody of the purchased stocks as collateral. However, if you deposit securities as collateral and gain purchasing power or trade limit of THB200,000, and use it to buy securities ‘A’, then the whole amount will be borrowed money.
As fundamentals and liquidity risk of the individual stocks traded on the market vary, a list of marginable counters approved for Credit Balance / Margin Financing has therefore been established to limit the risk exposure. A list of marginable ‘quality’ stocks with grading and multiple margin rate will be updated and announced to investors at least once a month.

Interest will be calculated at the specified rate based on your outstanding account balance at the end of each trading day. Your account will be reconciled at the end of each month to see if you earn interest on the cash balance or are required to pay interest charges. The account statement will be sent to you on a monthly basis to keep you informed of your investment.

  1. Credit Balance: You will earn an interest on outstanding cash balance in your account.
  2. Debit Balance: You are required to pay interest charges on margin loans.
  1. With equal chance of profit or loss, investors should make sound investment decisions before buying securities on margin in CB account. Let us suppose that you put THB100 into stocks on cash account and you close out your position to cut loss when the stock drops 20%. What it means is you will be left with THB80 in your account. On the other hand, what will happen if you buy securities on margin in CB account? Your buying power will double with increased trade limit of THB200 to buy shares (in case initial margin is set at 50%), but the broker will retain custody of the securities as collateral. Suppose the stock falls 20%, it means you will lose THB40, leaving you with THB160 in your account. If you sell the securities to cut loss, it will be enough for you to pay off the debit balance of THB100 with only THB60 left. However, if the stock increases 20%, it will be worth THB120. Suppose that you buy securities on cash account and sell them to take profit, it means you will make a gain of THB20. On the other hand, if you buy securities on credit in CB account for THB200, when the prices go up 20% to THB240, it means you will rake in profit of THB40. It therefore can be concluded that the profit/loss in CB account is a multiplier of the profit/loss in cash account (but subject to interest charges).

  2. The ups and downs of the debit balance or interest may increase your investment risks. On this basis, investors should invest in the ‘right’ stocks at the ‘right’ time in order to generate more returns to offset the interest risks.

  3. Terms of CB account agreement on the selection of marginable securities approved for margin financing and the multiple margin rate are considered as one of the key factors that investors should take into account before making any investment decisions.

  4. Maintenance margin (MM) is one of the major requirements for margin trading in CB account. If the equity balance in your CB account falls below the specified MM levels, a ‘margin call’ will be issued and you must top up funds or collateral into your account to bring the margin back to its minimal level. If the margin call is not met, any or all open position in your CB account will be liquidated even without your permission in order to pay back debts until the equity meets the minimum margin level. This process is known as ‘force-selling margin.’ On this basis, investors must accept the terms and conditions of CB account agreement, and should pay very close attention to their portfolio to avoid these risks.
 
Once you have understood the terms and conditions, and have considered the risk factors of Credit Balance, as well as being able to make the ‘right’ investment decisions at the ‘right’ time, Credit Balance will be an ideal tool to boost your buying power Õ