Taking a bank loan out for Investing

[Bullz n Bearz]

Hi, I was wondering if any of you have ever taken a loan out from the bank to sport your trading?

Let me know what you think about it and if it's a good idea.

 

[Trader333]

As a rule of thumb the advice given with regard to investing and or trading is:

Don't use any money that you cannot comfortably afford to lose.

If you need to borrow money to invest or trade then it suggests that you are not in the best position to be able to afford to lose it.


Paul

 

[Splitlink]

I would not do it.

Split

 

[Charlton]

Bullz n Bearz

Never done it. Would never think of doing it. Crazy thing to do, because you are now adding in the loan interest into the equation, thereby adding to the difficulties of making a profit and hence the risk reward ratio is weighted more and more against you.


Charlton

 

[Splitlink]

Even if you were to get the loan interest free, the moral obligation of having to return the capital would put me off.

Split

 

[Lightning McQueen]

Im frantically trawling the net for an article I read in the late nineties about margin trading and brokerage accounts opened by credit cards. excellent article it was, inspiring stuff, probably lost for ever.

Ok, Im going to be a little controversial here and say why not, if a good proven strat is in place, why not have your cake and eat it. No ones going to make life changing amounts from trading unless they are doing it in reasonable size. Borrowed money allows the less well off to play big and strat willing, live the high life........now where's that damn article!

 

[fibonelli]

totally bonkers especially if you're trading on margin too

 

[Splitlink]

Don,

You are talking like someone who has just come on the scene, full of optimism and so sure that everything is going to go your way. I'm sure that you know that that is not so in trading.I started off in trading, already fairly comfortably off and learned, that way, how difficult it is to make a crust in this. Now, getting on in life, experience is telling me not to borrow. Credit cards screw you for 25-35% per year, unless you pay at the end of the month. It's ridiculous! My wife has a credit card, but I have never bothered, except for having a housecard with Corte Inglés. She drags hers out when when we hire a car, or go on a flight, but cash is king as far as I am concerned and borrowing to trade is, simply, not an option.

Split

 

[Lightning McQueen]

totally bonkers especially if you're trading on margin too

Don,

You are talking like someone who has just come on the scene, full of optimism and so sure that everything is going to go your way. I'm sure that you know that that is not so in trading.I started off in trading, already fairly comfortably off and learned, that way, how difficult it is to make a crust in this. Now, getting on in life, experience is telling me not to borrow. Credit cards screw you for 25-35% per year, unless you pay at the end of the month. It's ridiculous! My wife has a credit card, but I have never bothered, except for having a housecard with Corte Inglés. She drags hers out when when we hire a car, or go on a flight, but cash is king as far as I am concerned and borrowing to trade is, simply, not an option.

Split

Hi guys

I was under the impression that the thread starter was a pro trader although on reflection the opening question is nieve, I suppose a point may be made shortly. What I will do is moderate the title of my post so as not to mislead, hows that? it it a bit strong. Im still looking for the article but I dont have high hopes of finding it, I can remember the general points, which im writing up now.

 

[Bullz n Bearz]

Don,

You are talking like someone who has just come on the scene, full of optimism and so sure that everything is going to go your way. I'm sure that you know that that is not so in trading.I started off in trading, already fairly comfortably off and learned, that way, how difficult it is to make a crust in this. Now, getting on in life, experience is telling me not to borrow. Credit cards screw you for 25-35% per year, unless you pay at the end of the month. It's ridiculous! My wife has a credit card, but I have never bothered, except for having a housecard with Corte Inglés. She drags hers out when when we hire a car, or go on a flight, but cash is king as far as I am concerned and borrowing to trade is, simply, not an option.

Split

Interesting. Yeah, the interest is a huge turn off for me.. I think i'll pass on this one.. But thanks for your ideas, guys.

 

[Paul71]

Credit is just a form of financing a business, i personally don't think it's that crazy. Implemented into a thorough and professional business and trading plan, why not?

It's not recommended for the learning phase, definately not.

 

[options]

I know of at least one trader who used to frequent these boards and was well respected, Who borowed 1,000 on his credit card to finance the start of his trading career.

He hasn't looked back since.
Now he has his own trading site for forex trading and continues to grow.

BUT He had been testing his trading methodology for a very long time before going live, and stuck to his plan rigidly.

It paid off for him. But for the vast majority with not enough will power and no tested trading method in place it would not be for them.

So the answer is a big NO.

The way around this is to save up 300 pounds or so and trade with one of the sb's.
Not ideal, but the cheapest way to start.

 

[counter_violent]

I remember a mate from 20 yrs ago who bought and sold shares....moderate size purchases lets say from 1k up to maybe 5k per company he was interested in....all this activity was through the eighties after the relaxing of money supply...he did reasonably well each year...in a bull market of course....then he suddenly gets this crazy idea to borrow approx 30 k ....because his returns were making more than interest payable on the loan....he then gets it in his head that Cadburies are ripe for a takeover....absolutely insistant he was and kept piling more and more in ......of course the takeover never happened...I mean why would it !!!! his maximum holding eventually was in excess of 60 k in the One share....then 1987 happened...and he went back to work I presume to pay off the loan....

ah well ...just One little story.

 

[Splitlink]

I do not say that some have not done it. I just say that it is one hell of a risk.

I remember, a few months ago, listening to "You and Yours", a consumers' programme on BBC4 in which a person was explaining how he borrowed £4000 to buy a car. He was married and defaulted on his payments. Didn't mean to, didn't tell his wife, either, and built up a debt of hundreds of thousands of pounds, incredibly quickly.. In the end the whole thing collapsed around his ears.

Don't do it. I don't know what is worse, that, or writing naked options.

Split

The UK has a debt 0f 1.3 TRILLION POUNDS in mortgage other debt, including credit cards. Everybody borrows in some form or other, it seems to be the thing to do these days. But it is going to come back to us, later, in some form or other.

 

[counter_violent]

I do not say that some have not done it. I just say that it is one hell of a risk.

Don't do it. I don't know what is worse, that, or writing naked options.

Split

still

 

[Paul71]

A lot of what has been posted on this thread is good advice, but it leads us to questions.
It seems to lean to the very negative side, the risky side, one would ask if some of the responses are to say that trading is far too much of a gamble. I'm not going to go there, don't worry, but if a person has liquid assets of thier own and trading is such a risky and dangerous business...why are we doing it?

Why put any money on the line?

What is the true nature of a persons interest in trading if they doubt thier own abilities?

Yeh! Don't get into the insurance of options.

 

[Splitlink]

A lot of what has been posted on this thread is good advice, but it leads us to questions.
It seems to lean to the very negative side, the risky side, one would ask if some of the responses are to say that trading is far too much of a gamble. I'm not going to go there, don't worry, but if a person has liquid assets of thier own and trading is such a risky and dangerous business...why are we doing it?

Why put any money on the line?

What is the true nature of a persons interest in trading if they doubt thier own abilities?

Yeh! Don't get into the insurance of options.

People do it because they believe that they can pull it off. However, doing it with money that is spare, after the mortgage has been paid for, is one thing. Borrowing, losing it and having to pay back the capital plus exorbitant interest rates, is another.

However, I've tried to get this across so strongly because that is the way I feel about it. If I haven't been successful , then I am sorry, but that is about all I can say on the subject.

I feel so strongly about debt that I will not buy any share that has net gearing of over 40% and, with interest rates rising I am going to cut that back to 30%.

But, of course, that is fundamental analysis and you guys are chartists

Split

 

[options]

Nice last post Split. If you intend to hold shares for any longer than a week you should look into the funnymentals a bit. How else are you going to get the full picture.

Not for me though. I'll look at the funnies in case there is something coming up, but I have to admit that I am really a pure chartist. The chart tells me all I need to know. And I rarely do shares now in any case.

Anyway, back to the thread. A piece from you a post or two back.

"The UK has a debt 0f 1.3 TRILLION POUNDS in mortgage other debt, including credit cards. Everybody borrows in some form or other, it seems to be the thing to do these days. But it is going to come back to us, later, in some form or other."

This I think will be sooner rather than later, bit of a crash on the way imv. All the warning signs have been around for a time now. Interest rates have started rising, just after the 110/120 % per cent mortgages had done the rounds. They can't give money away quick enough.

Crash comes, most of the debt will be written off. People will be homeless. More burden on the social system and on those taxpayers that actually have a job left.

So borrowing money to trade? Well, worst case at the moment is that they can't get it back if it all goes pear shaped and you don't have it. Worst they can do is make you bankrupt, which is not a big deal these days.

Some of the great traders went bankrupt not once but twice before making it.
I'm thinking of Livermore here...

Mind you he did shoot himself in the head in the end...

 

[Splitlink]

Hi Options,

There is a thought that has just occurred to me which may be worthy of comment.

Anyone who borrows money and spreadbets with it should be aware of the margin requirement. A Footsie share, just for rolling bets, could have a margin requirement of, in Lonmin's case, £ 190 per £1 bet. So high rollers must have thousands deposited as margin money. There, surely, is no security protection with finacial bookmakers so this point has to be taken into serious consideration. If the company goes bust with your borrowed money, you are, really, up the creek without a paddle.

On the other hand, the margin limits, considerably, the amount that you can put to work in the actual bet size.

Split

 

[options]

Very good point Split.

You know I looked at all this when spreadbetting first came on the scene.
I looked at IG with regards to client protection, but its' so long ago now that I can't remember what conclusion I came to!

Let's say they do have oodles of it (Client protection) and they go bust.

You are then screwed, because you will not get all or any of your monies back inside of a month, or six.

Can't pay the card or bank loan on the due date.

"Hello, your honour. As my lawyer will testify. I am not of sound mind and judgement and cannot be held responsible for my actions. I told the credit people that the money they offered me was not enough. So what did they do? They gave me more. I mean your honourship, come on they said I didn't have to pay it back all in one go... I've only missed 5 payments and now they want it all back.
This is totally stupid you see. If I was able to pay them all back in one go, I wouldn't need the loan in the first place.
By the way can I interest you in a time share in the Algarve?"