Margin Loan questions

[white_goodman]

Re: Margin Loans

Its not the banks money. Its the peoples money.

" If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. "
Thomas Jefferson, Letter to the Secretary of the Treasury Albert Gallatin (1802)
3rd president of US (1743 - 1826)

well if there was a better system it would have been brought into place

 

[Macquack]

Re: Margin Loans

well if there was a better system it would have been brought into place

Do you think the bankers would happily give up their power to issue/create money? Not likely.

John F Kennedy tried to reduce the power of the Federal Reserve(a private banking cartel) and look what happened to him!

 

[white_goodman]

Re: Margin Loans

Do you think the bankers would happily give up their power to issue/create money? Not likely.

John F Kennedy tried to reduce the power of the Federal Reserve(a private banking cartel) and look what happened to him!

sounds like you have watched zeitgiest too much

 

[Eddyl]

Re: Margin loans

I believe you only pay interest on what you've borrowed, but you don't earn any "interest" on what you haven't used.

What I did before getting my margin loan with Commsec was I took my list of shares that I own, and figured out which of them Commsec have as accepted shares, put the % of borrowing against each share, threw out ones that they don't accept. and then Transferred across the LOWEST % value. That way I'm hopefully staying as far awar form a margin call as possible.

Sorry Santob, not 100% sure on this could you elaborate.
For instance if I took out a margin loan of $20000. I had $7000 of BHP and $3000 of WES(current market position), and I wanted to gear these up to $10,000 each. So all up using $10000 of the margin loan. Do they calculate the LVR relative to my whole portfolio, or just relative to the actual security.

So say WES had an LVR of 70%, if the share price dropped at all I would suffer a margin call? Or would they say that I have only used 50% of my total margin loan(20000), so the extra 10000 would act as a buffer?

Cheers,

 

[Pager]

Anyone looking to get a Margin loan or pre pay interest should shop around as rates seem to have come down the last few days, i was getting quoted 10.05% last week at best but this week Ive been offered 9.55% with one of the same lenders.

Macquarie have 9.45% but you have to open an account with the Prime facility, its not bad by all accounts.

the highest rates are with the likes of BT and Commsec, both these aren't very flexible with rates i found, surprising as they are 2 of the bigger lenders.

I have stayed away from small lenders after whats gone on this year and gone with Citibank at the above rate.

 

[Junior]

Re: Margin loans

Sorry Santob, not 100% sure on this could you elaborate.
For instance if I took out a margin loan of $20000. I had $7000 of BHP and $3000 of WES(current market position), and I wanted to gear these up to $10,000 each. So all up using $10000 of the margin loan. Do they calculate the LVR relative to my whole portfolio, or just relative to the actual security.

So say WES had an LVR of 70%, if the share price dropped at all I would suffer a margin call? Or would they say that I have only used 50% of my total margin loan(20000), so the extra 10000 would act as a buffer?

Cheers,

In that situation, assuming the LVR on all your stocks is 70% and your buffer is 10% it would be:

Shares - Market Value $20,000
Loan Limit $14,000 70%
Loan Balance $10,000 50%

Your portfolio would need to drop in value by 35% before a margin call is triggered.

 

[dazers]

Another margin loan question

Hello,
Can anyone answer my question regarding the initial cash or shares required as security for the establishment of a margin loan:
Once the loan is established and becomes like a flexible line of credit, can I remove the initial cash or sell the initial share security and still have the margin loan sitting there?

 

[Tysonboss1]

Re: Another margin loan question

Hello,
Can anyone answer my question regarding the initial cash or shares required as security for the establishment of a margin loan:
Once the loan is established and becomes like a flexible line of credit, can I remove the initial cash or sell the initial share security and still have the margin loan sitting there?

A margin loan operates as sort of a floating line of credit,

you need to provide some shares as security to get it started, if you take security away then the amount you can borrow drops,

 

[merman]

Margin Loan Query

Just wondering about the following situation and any thoughts people may have.

Suppose I took out a margin loan of 100k and bought 100k of BHP shares. If the next day I sold the 100k of BHP shares (they didn't gain or lose value in this time).

I then place the 100k from the sale of BHP shares into my mortgage instead of the margin loan.

Am I still able to claim a tax deduction on my margin loan if a just keep making the interest payments?

 

[skc]

Re: Margin Loan Query

Just wondering about the following situation and any thoughts people may have.

Suppose I took out a margin loan of 100k and bought 100k of BHP shares. If the next day I sold the 100k of BHP shares (they didn't gain or lose value in this time).

I then place the 100k from the sale of BHP shares into my mortgage instead of the margin loan.

Am I still able to claim a tax deduction on my margin loan if a just keep making the interest payments?

Most margin loans are "linked" to your stock holding and have a LVR (loan valuation ratio). So for example the LVR for BHP may be 60%, which means they lend you 60% (the loan) against the valuation of your holding.

You can't borrow 100%, and you certainly can't sell your shares and still have the loan outstanding.

If that's the case then it's like an un-secured loan and the interest rate would not be the same as a BHP margin loan.

 

[StumpyPhantom]

Re: Margin loans

If your a beginner (which you have said you are), i would STRONGLY recommend you just using normal cash without leverage for the first year or so.

That way if anything unexpected happens you are shielded.

Learn to walk before you can run etc etc

+100

In a dramatically falling market like this one, you're not just catching a falling knife, you're catching a dozen of them.

I read a report recently (Commsec, I think) about margin loans increasing significantly. This perceived 'easy money' is going to burn a lot of novices.

 

[Judd]

Re: Margin loans

.........I read a report recently (Commsec, I think) about margin loans increasing significantly. This perceived 'easy money' is going to burn a lot of novices...

Happens all the time when those that "know" what they are doing go and do it. Has been the same since Chris Corrigan introduced margin loans to Australia at the time he was managing director of BT Australia.

I've run out of sympathy pills so I wont be shedding any tears about their investment life stories if it all goes pear shaped for them.

 

[tech/a]

Re: Margin loans

Happens all the time when those that "know" what they are doing go and do it. Has been the same since Chris Corrigan introduced margin loans to Australia at the time he was managing director of BT Australia.

I've run out of sympathy pills so I wont be shedding any tears about their investment life stories if it all goes pear shaped for them.

Rather than fear it they should learn how to use it to their advantage.
Leverage is a powerful partner

 

[StumpyPhantom]

Re: Margin loans

Rather than fear it they should learn how to use it to their advantage.
Leverage is a powerful partner

...when we're in a bull market....

 

[tech/a]

Re: Margin loans

...when we're in a bull market....

If that comment were true that would be the case for all trading---leveraged or not.
I prefer

When your on the right side of a trade.

Any idiot can make a buck in a bull market.

 

[Tyler Durden]

I don't know much about margin loans, but my current thinking is this:

say I have $10,000 in cash. I take out a margin loan of $10,000 to buy shares. That way, any interest on the margin loan is deductible, and if things go very pear shaped, then I can always bail myself out by using my cash to pay for the margin loan, no?

So the benefit from the above situation is that the interest is deductible, as opposed to if I had used my own money?

 

[Junior]

I don't know much about margin loans, but my current thinking is this:

say I have $10,000 in cash. I take out a margin loan of $10,000 to buy shares. That way, any interest on the margin loan is deductible, and if things go very pear shaped, then I can always bail myself out by using my cash to pay for the margin loan, no?

So the benefit from the above situation is that the interest is deductible, as opposed to if I had used my own money?

The interest is deductible, but that doesn't make it free...you still have to pay the interest. If you're on the 30% marginal tax rate for example, it's effectively like a 30% discount on the interest. So you still incur 70% of the cost after allowing for the tax advantage.

The main benefit of the margin loan is leverage, although you only have $10,000 equity, add that to a margin loan of $10,000 and you can invest $20,000. The downside is increased risk of magnifying your losses, and risk of margin call.

 

[Garpal Gumnut]

This is an excellent thread.

I can give you my experience this financial year. I took out a margin loan of $40,000, and paid something over $3000 prepaid interest in late June 2011.

I prepaid the interest for 12 mo. , and had some capital in the account. Don't ask for exact figures. This has all been calculated on the back of a cohiba box, and is as happened.

I didn't make a trade for 5 months and then bought AMP. I waited for the divi, and sold in March when it came back to my buy price.

I didn't trade again until Feb 12, and then aggressively bought and sold , WBC, SWM, TEL, PRR, HZN, PEN, OST, CSL, and FMG ( by far the best trading stock ) and made mostly small gains <$500, a few big gains and some small losses as I was particularly tight with my stops.

SWM was good to me, I must be the only bloke to be able to say that this year. I lost significantly on OST.

According to my figures I made capital gains of about $4000 no more no less give or take a few hundred. Divis were about $5-700 some ff some not as I got out to preserve capital on some of them.

It was bloody hard work and I don't reckon it was worth it.

I am in cash now on my margin account.

As tech/a said, any fool can make money in a bull market.

Is a margin loan worth it? It depends.

If a bull market is around the corner you will make heaps.

If it is like the last 12 months you will spend a lot of time and money, making a small profit, or if you are a buy and hold of "safe stocks" you will lose your knickers.

It was a good experience all the same.

Do not just do it for tax reasons.

gg