Gearing Shares

[carmo]

Hi
What are the options when it comes to gearing shares?

 

[GreatPig]

I haven't done any gearing myself yet, but the two main options I can think of are margin loans and derivatives (options, CFDs, and warrants).

For margin loans, you could have a standard margin loan against the shares you're buying, or if you had some available equity in mortgaged real estate, draw down on that for a cheaper rate and no hassles with margin calls.

GP

 

[Sean K]

I've a Margin Loan with HSBC and they only take shares, managed funds and cash as collateral for the loan. No real estate.

I'm not sure if it's a good time for a new player to be going into debt to buy shares. Even though I am personally bullish, the market's too volatile and there is a chance of negative returns which will compound margin bought shares losses.

But, if you're a long term player, using other peoples money to buy shares could be a good idea. As long as you pick the right stock!

Sorry, I seem to be on the fence a little bit there.

 

[GreatPig]

I've a Margin Loan with HSBC and they only take shares, managed funds and cash as collateral for the loan. No real estate.

If you were using real estate as collateral, you wouldn't get a margin loan as such. Instead you'd just draw down on your mortgage (a LOC would probably be easiest) and use that.

Cheers,
GP

 

[carmo]

Thanks for that, think I might sit on the fence myself for a while.

 

[Staybaker]

Another alternative is a geared managed fund, if you don't want to make the trading decisions yourself. For example, Colonial First State offer a "Geared Global Share Fund" and a "Geared Australian Share Fund".

Cheers, Staybaker.

 

[rozella]

Leveraged Equities have a facility called Powerhouse.

PowerHouse enables you to borrow up to 90%* of the value of residential real estate that you currently own or wish to purchase. Your property is added to your existing Leveraged Equities Margin Loan Account for a maximum of 25 years and can be either the sole security, or held with other acceptable securities that you own. * for loans <$500,000

What Are The Benefits?
The main benefits offered by PowerHouse are convenience, flexibility, savings and reduced risk.

Convenience
PowerHouse allows you to consolidate your property, cash, shares, managed funds, master trusts and wrap accounts all on the one loan account. The transfer of funds is not required between separate bank loan accounts, reducing your management time and avoiding bank and government transaction costs.

You will be provided with your own personal Account Manager to assist you with your daily needs and the operation of your account.

Flexibility
With PowerHouse you have an interest only facility with no scheduled monthly interest or principal repayments. You have the option of being charged interest in advance, monthly in arrears or you can allow your interest to capitalise, provided you have sufficient equity on your account. There are no restrictions on the size or frequency of draw down amounts or transactions.

Savings
If you choose to use property as security, you will receive a discount to our standard margin loan interest rate.

Reduced Risk
Unlike shares you may hold as security, which can fluctuate in value on a daily basis, the margin value of your security property will remain fixed for the first 10 years. This can significantly lower the risk of a margin payment on your account.


This is the link Powerhouse

 

[tech/a]

The question I never see answered is How much gearing should I use.

Well infact its a question Ive never seen asked.

How would others determine what gearing to use---other than the old "Whatever your comfortable with".

 

[wayneL]

The question I never see answered is How much gearing should I use.

Well infact its a question Ive never seen asked.

How would others determine what gearing to use---other than the old "Whatever your comfortable with".

One consideration (out of a few) is "at a level that doesn't violate your money management rules". (presuming these rules are sound, eg 2% fixed fractional etc)

Another; How much can a fat tail hurt me in a leveraged trade?

 

[Sean K]

Rozella, Good plug for Powerhouse. You a director??

 

[rozella]

Rozella, Good plug for Powerhouse. You a director??

Not even a shareholder atm.....but I might buy some in a month or two.....they are a subsiduary of Adelaide Bank (ADB)

 

[mit]

One consideration (out of a few) is "at a level that doesn't violate your money management rules". (presuming these rules are sound, eg 2% fixed fractional etc)

Another; How much can a fat tail hurt me in a leveraged trade?

Also not to be tempted into too many positions. With Margin Loans I tend to run out of Margin first so it has never been a problem.

I have two CFD accounts. With the mechanical trading account as a rule of thumb I stop when the sum of the margins and the sum of the total risk (How much I'd lose if everything hit it's stop) can't be more than 50%.of my capital.

With my other account I just never risk more than 6% of the account at a time.

MIT

 

[tech/a]

Mit and Waynes replies are more along the lines I had in mind.

Using Margin (leverage) is one thing.
Appropriate use----completely another.