The first purchases of shares with money borrowed from brokers will begin on the Bucharest Stock Exchange today. BT Securities is the first brokerage firm to offer this option to its clients.
Other brokerage firms are preparing similar products, according to information available on the market, so that the ability to buy shares from the Stock Exchange with money borrowed from a broker might spread throughout the entire market in the next few months, and could give a boost to the quotes of listed shares as a result, particularly considering that the reverse operation, that is to sell borrowed shares, is not yet permitted.
"We are giving our clients the option of having their share acquisitions 100% funded by us in case security is provided," says Rares Nilas, BT Securities' general manager. He says the company has been testing these operations on the market in recent weeks.
According to the general manager of the Bucharest Stock Exchange, Stere Farmache, no company has engaged in margin trading until now, though the legal framework has been in place since last year.
Purchases made with borrowed money may increase the risk on the Stock Exchange, given that a 1% fluctuation of the price of a specific share ends up amplified by a several times higher percentage in the portfolios of the investors who trade in this manner, with the added risk of losing everything they have invested if the market experiences a significant decline.
Margin buying (where the investor comes up with only a part of the money necessary for buying shares, with the rest borrowed from the broker) is regularly witnessed on developed capital markets. Such transactions allow investors to multiply their profits, relative to the amount they have available, but the operation also entails a greater risk, as losses are much higher than when shares are bought exclusively with the
