How taking short positions can work to enhance your income
|
INVESTOR PROFILE |
|
|---|---|
| Outlook | Neutral - Negative |
| Risk Profile | Medium - High |
| Time Frame | Short - Medium |
In times of low share price volatility and flat markets, investors looking for alternative ways to enhance income can use their MQ Prime Facility to earn interest on short positions.
Cash that is generated on short positions will be paid into the Funding Account. These funds will either offset the funding of long positions or earn interest if the Funding Account Balance is positive.
Case Study
You should note that this example is illustrative only. It is not a recommendation to make any investment in any share, and should not be taken as personal advice. With a MQ Prime Facility, you are responsible for selecting the share for any position you take out. As such, the performance of any share position will depend mainly on your own investment decisions.
Stuart believes that BHP is trading at fair value and he sees no short term impetus for a rise in its share price. Stuart is an experienced trader and decides to use his Prime Facility to take a short position over $100,000 worth of BHP shares in order to earn additional income. Stuart holds no other shares in his Prime Facility.
Stuart uses his Prime Facility to short $100,000 of BHP at $30. After 3 months BHP is still trading at $30 however Stuart feel the share price may now start to rise so he buys back $100,000 of BHP at $30.
The following table illustrates how Stuart can earn a relatively high interest rate on capital outlayed.
| BHP Exposure |
$100,000 |
|---|---|
| Interest received on negative Funding Account Balance at 6.25% |
$1,563 |
| Stock Borrowing Cost at 2.5% |
$625 |
| Net income from Short Position |
$938 |
| Collateral (@ 10%) |
$10,000 |
| Return on Collateral |
9.38% |
| Return on Collateral p.a. |
37.50% |
Due to recent rebranding of our products, we now use the term "MQ" in place of "Macquarie" in all marketing and informational material concerning our CFD, Prime and Cash Account products (except where we refer to a Macquarie company). For example, we now use "MQ CFDs" rather than "Macquarie CFDs". Please note that this rebranding has not affected the substance of the products in any way and they remain issued by Macquarie Bank Limited.
MQ Prime can be high risk and is intended for experienced investors. Consider carefully whether a MQ Prime Facility, MQ Prime Cash Account and/or a MQ CFD account, each issued by Macquarie Bank Limited ABN 46 008 583 542 are appropriate for you; talk to a financial adviser; and before investing read the relevant product disclosure statement available from www.macquarie.com.au/prime. Information is current at 5 February 2008 and may change without notice.
