Japan Stock Rules· Lesson 6 of 6· 7 min

Margin Trading (Shinyo): Borrow Money to Buy, Borrow Shares to Sell

In Japan, putting up margin lets you borrow money to buy shares or borrow shares to sell, at about 3.3× leverage; if the maintenance ratio falls below the requirement you must add margin, and standardized margin lasts 6 months at most.

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Text version · Japan Stock Rules, lesson 6: “Margin Trading (Shinyo): Borrow Money to Buy, Borrow Shares to Sell”

Deposit 30%, trade about 3.3×

margin trading (Japan) requires a margin deposit first: at least 30% of the trade value and no less than ¥300,000. You can borrow money to buy (margin buying) or borrow shares to sell (short selling).

Fall below it and you get a margin call

margin maintenance ratio = (margin deposit − paper loss) ÷ position value. Fall below your broker's requirement (legal minimum 20%, many brokers higher) and you must post additional margin; if you don't, the position is closed for you.

Standardized margin: 6 months maximum

standardized margin trading positions must be closed within 6 months at most; for negotiable margin trading the term is set by the broker. Margin buying pays interest and short selling pays a borrow fee, so the longer you hold, the higher the cost.

Key takeaways

Margin trading requires a margin deposit first: at least 30% of the trade value and no less than ¥300,000, which allows about 3.3× leverage.
Maintenance ratio = (margin − paper loss) ÷ position value; below your broker's requirement (legal minimum 20%, higher at many brokers) you must add margin, or the position is closed for you.
Standardized margin positions must be closed within 6 months at most, and the term for negotiable margin is set by the broker; margin buying pays interest and short selling pays a borrow fee, so the longer you hold, the higher the cost.

Try it yourself

You can do these exercises in this lesson's interactive simulation:

¥1 million margin at 3× leverage: what's the position value and the margin deposit ratio?
Drag the price change down: at what price is a margin call triggered? How much would you need to add then?
Switch to “short sell”, then drag the price up: does a rise or a fall lose you money now?
Drag the holding period to 200 days: what warning appears? How much interest in total?

Quiz and explanations

1. With a ¥1 million margin deposit, roughly how large a position can you open at most?: Answer: About ¥3.33 million.Margin must be at least 30% of the trade value: 1,000,000 ÷ 30% ≈ ¥3.33 million.
2. Margin ¥1 million, margin purchase ¥3 million; the price falls and the paper loss is ¥500,000. What's the maintenance ratio?: Answer: About 16.7%.(1,000,000 − 500,000) ÷ 3,000,000 ≈ 16.7%, already below the legal minimum of 20%, so you must add margin.
3. How long can a standardized margin position be held at most?: Answer: 6 months.Borrowed money and shares under standardized margin must be settled within 6 months at most; the term for negotiable margin is set by the broker.

Terms in this lesson

borrow fee (Borrow Fee): What you pay the lender for borrowed shares when shorting, based on an annual rate and days borrowed; hard-to-borrow stocks can be very expensive.
margin call (Margin Call): When your account drops below maintenance margin, you must add funds or your positions will be closed.
margin maintenance ratio (Margin Maintenance Ratio): (Margin − paper loss) ÷ position value. Below the required level (legal minimum 20%, higher at many brokers) you must add margin, or the position is closed for you.
negotiable margin trading (Negotiable Margin Trading): Margin trading on terms agreed between broker and client: the term, costs and eligible stocks are set by the broker, and some positions can be held indefinitely.
margin trading (Japan) (Margin Trading (Japan)): Putting up margin with a Japanese broker to borrow money to buy shares (margin buying) or borrow shares to sell (short selling). The margin must be at least 30% of the trade value, which allows about 3.3× leverage.
standardized margin trading (Standardized Margin Trading): Margin trading on terms set by the exchange: the eligible stocks are chosen by the exchange, and borrowed money or shares must be settled within 6 months at most.