Margin Borrowing Calculator

Margin Borrowing Calculator

Calculation Results:

Current Equity in Account: $0.00

Current Equity Percentage: 0.00%

Available Margin for Additional Borrowing: $0.00

Estimated Annual Interest Cost: $0.00

Estimated Margin Call Price (Current Holdings): $0.00

Results with Desired Additional Borrowing:

New Debit Balance: $0.00

New Equity Percentage: 0.00%

Estimated Margin Call Price (After Additional Borrowing): $0.00

function calculateMargin() { var currentMarketValue = parseFloat(document.getElementById('currentMarketValue').value); var currentDebitBalance = parseFloat(document.getElementById('currentDebitBalance').value); var maintenanceMarginRate = parseFloat(document.getElementById('maintenanceMarginRate').value); var annualInterestRate = parseFloat(document.getElementById('annualInterestRate').value); var currentAveragePrice = parseFloat(document.getElementById('currentAveragePrice').value); var desiredAdditionalBorrowing = parseFloat(document.getElementById('desiredAdditionalBorrowing').value); var resultDiv = document.getElementById('calculatorResult'); var additionalBorrowingResultsDiv = document.getElementById('additionalBorrowingResults'); // Input validation if (isNaN(currentMarketValue) || currentMarketValue < 0) { resultDiv.innerHTML = 'Please enter a valid Current Market Value of Securities.'; return; } if (isNaN(currentDebitBalance) || currentDebitBalance < 0) { resultDiv.innerHTML = 'Please enter a valid Current Debit Balance.'; return; } if (isNaN(maintenanceMarginRate) || maintenanceMarginRate 100) { resultDiv.innerHTML = 'Please enter a valid Maintenance Margin Requirement (0-100%).'; return; } if (isNaN(annualInterestRate) || annualInterestRate < 0) { resultDiv.innerHTML = 'Please enter a valid Annual Interest Rate.'; return; } if (isNaN(currentAveragePrice) || currentAveragePrice <= 0) { resultDiv.innerHTML = 'Please enter a valid Current Average Price Per Share/Unit (must be greater than 0).'; return; } if (isNaN(desiredAdditionalBorrowing) || desiredAdditionalBorrowing 0) ? (currentEquity / currentMarketValue) * 100 : 0; // Available Margin for Additional Borrowing (before hitting maintenance margin on current holdings) var maxAllowedDebit = currentMarketValue * (1 – maintenanceMarginDecimal); var availableMargin = Math.max(0, maxAllowedDebit – currentDebitBalance); // Cannot borrow less than 0 // Estimated Annual Interest Cost var annualInterestCost = currentDebitBalance * annualInterestDecimal; // Margin Call Price (Current Holdings) var marginCallPrice = 0; if (currentMarketValue > 0 && currentAveragePrice > 0 && (1 – maintenanceMarginDecimal) > 0) { marginCallPrice = (currentDebitBalance * currentAveragePrice) / (currentMarketValue * (1 – maintenanceMarginDecimal)); } // — Display Current State Results — document.getElementById('currentEquity').innerText = '$' + currentEquity.toFixed(2); document.getElementById('currentEquityPercentage').innerText = currentEquityPercentage.toFixed(2) + '%'; document.getElementById('availableMargin').innerText = '$' + availableMargin.toFixed(2); document.getElementById('annualInterestCost').innerText = '$' + annualInterestCost.toFixed(2); document.getElementById('marginCallPrice').innerText = '$' + marginCallPrice.toFixed(2); // — Calculations with Desired Additional Borrowing — if (desiredAdditionalBorrowing > 0) { var newMarketValue = currentMarketValue + desiredAdditionalBorrowing; var newDebitBalance = currentDebitBalance + desiredAdditionalBorrowing; var newEquity = newMarketValue – newDebitBalance; // This will be the same as currentEquity if borrowed funds buy securities var newEquityPercentage = (newMarketValue > 0) ? (newEquity / newMarketValue) * 100 : 0; var newMarginCallPrice = 0; if (newMarketValue > 0 && currentAveragePrice > 0 && (1 – maintenanceMarginDecimal) > 0) { // Assuming the additional borrowing is used to buy more shares at the current average price, // the number of shares increases, and the new market value reflects this. // The margin call price calculation needs to reflect the new total market value and new debit balance. newMarginCallPrice = (newDebitBalance * currentAveragePrice) / (newMarketValue * (1 – maintenanceMarginDecimal)); } document.getElementById('newDebitBalance').innerText = '$' + newDebitBalance.toFixed(2); document.getElementById('newEquityPercentage').innerText = newEquityPercentage.toFixed(2) + '%'; document.getElementById('newMarginCallPrice').innerText = '$' + newMarginCallPrice.toFixed(2); additionalBorrowingResultsDiv.style.display = 'block'; } else { additionalBorrowingResultsDiv.style.display = 'none'; } } // Run calculation on page load for initial values window.onload = calculateMargin;

Understanding Margin Borrowing

Margin borrowing allows investors to borrow money from their brokerage firm to purchase securities. This can amplify potential returns, but it also significantly increases risk. Essentially, you're using your existing investments as collateral for a loan. This calculator helps you understand the key metrics associated with using a margin account.

Key Concepts Explained:

Current Market Value of Securities

This is the total dollar value of all eligible securities held in your margin account. It represents the collateral you have against your margin loan.

Current Debit Balance

This is the amount of money you have borrowed from your broker. It's the outstanding loan amount on which you pay interest.

Maintenance Margin Requirement (%)

After you've made your initial purchase on margin, your broker requires you to maintain a certain percentage of equity in your account. This is known as the maintenance margin. For example, if the maintenance margin is 30%, your equity must always be at least 30% of the total market value of your securities. If your equity falls below this level, you will face a margin call.

Annual Interest Rate on Margin Loan (%)

Brokers charge interest on the debit balance. This rate can vary based on the amount borrowed and market conditions. The calculator estimates your annual interest cost based on your current debit balance.

Current Average Price Per Share/Unit ($)

This input is crucial for calculating the "Margin Call Price." It represents the average price of the securities you hold in your account. If you hold multiple securities, you might use a weighted average or focus on the most volatile asset.

Desired Additional Borrowing (to buy more securities) ($)

This optional input allows you to see how borrowing more money to purchase additional securities would impact your debit balance, equity percentage, and potential margin call price.

Calculator Outputs Explained:

Current Equity in Account

This is your actual ownership stake in the margin account, calculated as: Current Market Value of Securities - Current Debit Balance.

Current Equity Percentage

This shows your equity as a percentage of the total market value: (Current Equity / Current Market Value) * 100. This is a critical figure to monitor against your maintenance margin requirement.

Available Margin for Additional Borrowing

This indicates how much more you can borrow against your current holdings before your equity percentage drops below the maintenance margin requirement. It's the difference between your maximum allowed debit balance and your current debit balance.

Estimated Annual Interest Cost

This is the approximate interest you would pay over a year on your current debit balance, based on the annual interest rate provided.

Estimated Margin Call Price (Current Holdings)

This is the average price per share/unit at which the market value of your securities would fall to a point where your equity percentage equals the maintenance margin requirement, triggering a margin call. If your securities drop to this price, your broker will demand additional funds or force the sale of your assets.

New Debit Balance, New Equity Percentage, and New Margin Call Price (After Additional Borrowing)

If you input a value for "Desired Additional Borrowing," these outputs show the updated figures assuming you use the borrowed funds to increase your market value of securities. This helps you assess the impact of expanding your margin position.

Risks of Margin Borrowing:

While margin can magnify gains, it also magnifies losses. A small decline in the market value of your securities can lead to a significant percentage loss of your equity. A margin call can force you to deposit more funds or liquidate your positions at an unfavorable time, potentially locking in losses. Always understand the risks before trading on margin.

Example Scenario:

Let's say you have a portfolio with a Current Market Value of Securities of $100,000 and a Current Debit Balance of $30,000. Your broker has a Maintenance Margin Requirement of 30%, and the Annual Interest Rate on Margin Loan is 8%. The Current Average Price Per Share/Unit is $100.

• Current Equity: $100,000 – $30,000 = $70,000
• Current Equity Percentage: ($70,000 / $100,000) * 100 = 70% (well above the 30% maintenance margin)
• Available Margin for Additional Borrowing: Your maximum allowed debit balance is $100,000 * (1 – 0.30) = $70,000. So, you could borrow an additional $70,000 – $30,000 = $40,000.
• Estimated Annual Interest Cost: $30,000 * 0.08 = $2,400
• Estimated Margin Call Price: The price at which your equity would fall to 30% is calculated to be approximately $42.86 per share.

If you then decide to use Desired Additional Borrowing of $10,000 to buy more securities:

• New Market Value: $100,000 + $10,000 = $110,000
• New Debit Balance: $30,000 + $10,000 = $40,000
• New Equity: $110,000 – $40,000 = $70,000 (your absolute equity remains the same)
• New Equity Percentage: ($70,000 / $110,000) * 100 = 63.64%
• New Margin Call Price: The price at which your equity would fall to 30% with the new debit balance and market value would be approximately $57.14 per share.

This example demonstrates how additional borrowing increases your debit balance and raises your margin call price, meaning you have less room for market downturns before a margin call.