By Mohammad Shoeb
DOHA: Stocks of 20 major most highly capitalised and liquid companies listed on Qatar Exchange (QE) will be open for Margin Trading’, which is expected to commence soon. The launch of the margin trading service is expected to enhance market liquidity and provide new financing channels for investors.
This was announced by a senior official of the QE yesterday on the sidelines of an event held at its headquarters to create awareness among investors and market participants about ‘Margin Trading’.
Once operational, the new tool will allow investors to borrow money from brokers (also called loan from brokerage firms) to purchase more stocks than an investor would be able to buy normally, providing leverage to amplify profit. However, it also involves high risks which depends on the knowledge and understanding of the investor about the stocks’ performance.
“We have started receiving applications from brokers who are interested to providing ‘Margin Trading’ services. The potential investors who are interested to avail margin trading services will need to open separate accounts,” an official said.
Once the account is opened and operational, investors would be able to borrow at the rate of 60:40 ratio enabling them to buy more stocks. Investors can also opt to borrow even less depending on the preference and agreement signed.
To understand the advantage of margin trading, let’s assume that an investor has QR6,000 to buy stocks of a company X at QR60 each. With the Margin Trading service, he will have the option to borrow up to QR4,000 additional money from his broker to buy up to 167 shares (QR6,000+QR4,000=QR10,000/QR60=166.67 shares), instead of buying only 100 shares on cash basis. Assuming that the price of that stock (X) increases by 25 percent to QR75, and the investor wants to sell all the shares, then the profit in both cases (cash basis and margin basis) will be, 25 percent and 41.7 percent, respectively.
Similarly, assuming that the price of the stock (X) declines by 25 percent, then the loss percentage on cash basis will be only 25 percent, but on margin basis the loss will be 41.7 percent much higher than without margin trading. Experts, as part of the policy to promote knowledge and investment awareness among all market participants, delivered lectures and made presentations in the seminar highlighting key requirements for Licensing and Application. The event was attended by brokers, Qatar Financial Markets Authority (QFMA) representatives, and public investors.
Nasser Al Abdul Ghani, QE Market Operations & Control Director, stated that the aim behind the launch of Margin Trading is to contribute in the development of the stock market performance and stimulate trading and liquidity.
Samer Abu Zaghla, Adviser at QE Market Operations, provided detailed explanation on Margin Trading procedures, controls and requirements and explained that the brokers wishing to be licensed as ‘Margin Lenders’ can submit their applications for QFMA’s approval, and once the member is licensed as a Margin Lender, it can perform Margin Trading activity at QE.
The Peninsula
