Margin Lending

What is Margin Lending and Gearing?

Gearing is the use of borrowed money, for which there is a cost – interest, that enables a person or entity to acquire something that they would otherwise be unable to do so utilising only their own money (equity).

Margin lending is simply a form of gearing for investment purposes. Investment gearing (which we will refer to simply as gearing from here inward) is the use of borrowed funds for the purpose of investing, with the intention to create a return greater than the cost (after tax) of that borrowing. Gearing involves investing in appreciating assets as these are the greatest returning investments. Appreciating assets include property and equities (shares). These investments have an income component, such as rent or dividends, and a growth component, which is brought about by an increase in the value of a property or share price. This increase may occur over time due to simple supply and demand.

Margin lending is a unique form of gearing as it has certain characteristics that distinguish it from what most people would consider an ordinary loan. These characteristics are often an advantage but can also be a disadvantage in some circumstances.