Example

 

An investor with a weighted "Security Portfolio" value of €100.000, may be eligible for a margin facility of up to €66.666. If all available credit is used to purchase securities eligible to be included in the "Security Portfolio", then the latter will have a total value of €166.000. The investor ends up with a portfolio with a value much higher than when using only his own money. This leads to leveraged returns (positive or negative).

In the table below, one can see the effects of leverage on returns when using a margin account that can lead to amplified profits (when prices go up) or higher losses (when prices fall).

Table 2 - The operation of Leverage through Margin Trading and its effect on the "Security Portfolio"

Initial Value of “Security Portfolio” in Euro	Margin Facility Provided by CISCO	Hypothetical Change in Prices in “Security Portfolio”	Profit or Loss on Initial Weighted Value of €100k of “Security Portfolio”	Percentage Profit or Loss on Initial Weighted Value of €100k of “Security Portfolio”
200.000	66.666	20%	33.334	33.33%
183.332	66.666	10%	16.666	16.66%
166.666	66.666	0%	0	0
150.000	66.666	-10%	-16.666	-16.66%
133.333	66.666	-20%	-33.333	-33.33%

The above is an example and the range of gains/losses has been kept within ± 20% for illustration purposes only. Gains/Losses can be greater in real life.