Calculating the buffer
Calculating the buffer
The Buffer is an allowance over and above the approved loan to value ratio or Lending Ratio to accommodate small market fluctuations without triggering a Margin Call. In most circumstances, Leveraged offers a Buffer of 10%.
How to calculate
- Identify all acceptable investments with a Lending Ratio applied;
- Calculate the Market Value of these acceptable investment; and
- Multiply by the Buffer percentage.
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If we assume a loan of $63,000 based on the above calculation, the margin loan would be “in the Buffer”.
The loan exceeds the Lending Value by $3,500 ($63,000 - $59,450) but this is less than the Buffer of $6,000.
However, a $66,000 loan would be subject to a Margin Call.
This is because the loan exceeds the Lending Value by $6,550 ($66,000 - $59,450), which is greater than the Buffer of $6,000.
Gearing involves risk. It can magnify your returns, however it may also magnify your losses.
Leveraged Equities Limited (ABN 26 051 629 282 AFSL 360118) is a subsidiary of Bendigo and Adelaide Bank Limited (ABN 11 068 049 178 AFSL 237879).
Information is general advice only and doesn't take into account your personal objectives, financial situation, or needs. The views of the author may not represent the views of the broader Bendigo and Adelaide Bank Group of companies (“the Group”). This information must not be relied upon as a substitute for financial planning, legal, tax or other professional advice. You should consider whether or not the product is appropriate for you, read the relevant PDS and product guide available at www.leveraged.com.au, and consider seeking professional investment advice. Not suitable for a self-managed superannuation fund.
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