Question on margin lending

[bullmarket]

no problem tech/a

To me you're just coming across as being upset because someone else also thinks you're posting BS

I'm sure the vast majority know it's a line of credit. I was just pointing out some obvious advantages of an equity loan as opposed to a margin loan for anyone that it might have slipped through their minds. I wasn't referring to you in particular.

I'll just keep watching your posts with amusement as I said in other threads.

Good luck in your endeavours and have a pleasant evening and remainder of the weekend

cheers

bullmarket

 

[crackaton]

Guys seriuous question here. I have some cash in an account and I want to minimise my tax. The only way I know is to negative gear but I want to do this with shares. Is this possible? Any thoughts?

 

[rozella]

G'day bullmarket,

An alternative to a margin loan is an equity loan. Obviously you need equity in an asset to qualify but if you do then an equity loan might be more practical for gearing investments than taking out a margin loan facility.

Each to their own I suppose, but my opinion is that with a margin loan you are trading/investing with a product that is using the security of the investment that you are purchasing, not some other unrelated asset. As we all know, that by using a margin loan, we must stay within certain ratios, otherwise we may have a margin call.....but is this not good.....someone is saying "hey, you are not doing your job, you have let your stocks fall below your stoploss, what are you going to do about it" We have the two greatest examples of all, TLS & AMP.......would we still have the original holdings if we bought on margin.....unlikely......but it is possible that we may still hold if bought with an equity loan. I keep saying it, but marginlending teaches discipline.....if you don't keep your portfolio tidy, then big brother asks you nicely to do so.

A margin loan is revolving credit, basically with no limit, you don't need to re-apply for larger loans as time goes by

If you are asset rich without the cash, you could always take out a smaller equity loan (as tech/a mentions), say $75,000, then use this for a margin loan which may give you $250,000 in the market....make your own risk allowances from there. On $250,000 you have a further $25,000 buffer with most marginlenders, which is ample.

This is all my own opinion, but until you are disciplined & have a consistant winning strategy, there is no point to any leveraging.

 

[rozella]

G'day crackaton,

With marginlending, the margin lenders send out an offer to prepay the next years interest.....all you are doing is pushing taxable income into the following year, but it is one method.

Another is, if the situation is right, buy into some LPT's & banks in June, as most go exdiv late June.....sell prior to 30th June......take the loss, & buy back on 1st July if you wish......the dividends are also paid in the next FY.

Have a yarn to your accountant prior to doing anything, don't take my word for it.

 

[123enen]

Guys seriuous question here. I have some cash in an account and I want to minimise my tax. The only way I know is to negative gear but I want to do this with shares. Is this possible? Any thoughts?

Taking out a margin loan allows you to do what you wish. It is a form of gearing and the interest you pay is a tax deduction. Instead of buying property with the money the bank lends you, you are buying shares.

If you are concerned about the money you have in your existing accout then, relative to this topic,
1. put that money into your margin loan account and that money can be used to pay for your portion ( equity) in the shares you purchase on margin.

2. Pre pay some interest this tax year for money you commit to borrowing for margin trading next tax year. This pre paid interest will become this years tax deduction.

Be careful - if you run a margin loan, have some back up cash. It can be in any account , including your margin account, but you will need it if things go south and you enter margin call status. If you do not have back up cash to release you from margin call then the bank, ( they will attempt to contact you first) , WILL sell one of your stocks.

 

[freja]

My Mum had approx 190k worth of shares and borrowed half of that in margin lending, they charge the interest but if her shares drop drastically in price, she was forced to sell with JB WERE. This margin lending is still in effect a year after because she had blue chip years so is still at low risk.

 

[wayneL]

Ofcourse you can trade in a discretionary manner and have winning trades.
Even a string of winning trades.

I'm interested Wayne if you believe that given any set of discretionary rules you can guarentee the same,and how?

It's simple tech, and it's similar to how mech traders think they can guarantee performance and then "discretionarily" discontinue their system if conditions become unfavourable. (You realise you become hoisted by your own petard, with statements like this, yes?)

It's called expectancy and I believe you are well aquainted with the concept... just used a slightly different way.

To be quite honest, I don't know why I bite when someone says T/a is nonsense, disc trading is nonsense, this is nonsense, that is nonsense.

When someone starts on this I'm just going to turn off because it's unmitigated BS. Pure ego talk.

The are a hundred ways to skin the market cat and all work, if the practitioner knows how... same as any business.

Did you know it's impossible for a bumblebee to fly? But in the end there you go. Good night and God bless :sleeping:

 

[tech/a]

It's simple tech, and it's similar to how mech traders think they can gaurantee performance and then "discretionarily" discontinue their system if conditions become unfavourable. (You realise you become hoisted by your own petard, with statements like this, yes?)

Wayne --you and many others seem to be missing the point and thats the point which gives the mechanical trader the confidence to trade what most consider larger accounts,Borrow and leverage,trade their own SMF.I'll make that point again.
They have a BLUEPRINT that if they trade within its parameters guarentee profit.
Stopping trading the method then ISNT a discretionary decision its a business decision and is quantified.
Stopping outside the rules/numbers of your method could be a discretionary decision,for any reason--liquidating capital for another purpose is perhaps one.But thats not an intrugal part of the reason a mechanical/systems trading method is more consistant and reliable than disc trading methods.

It's called expectancy and I believe you are well aquainted with the concept... just used a slightly different way.

Im interested in the Different way?

I you and anyone who trades in a disc way can come up with any set of conditions and variables apply it to some charts and discover a Positive Expectancy.Problem is after 100 charts or 1000 charts that positive expectancy can be ruin.A mechanical/systems trader has a much better idea after testing millions of trades wether that positive expectancy is genuine.For Duc even what we do is not enough!

To be quite honest, I don't know why I bite when someone says T/a is nonsense, disc trading is nonsense, this is nonsense, that is nonsense.

Frankly I dont mind good discussion on any topic,I think what annoys you and me is material presented WITHOUT varifiable substance.If I post anything on these topics I generally have something that can prove my arguement,or at least add to the discussion by example.If others do this rather than make "hypothetical,this is what I believe without any practically applied Basis"
Then we can all learn from the practical examples/arguements presented.
There is far to much,this SHOULD work,COULD work,WOULD work IF ONLY,type of theoretical discussion on BB's.
Whats wrong with THIS DOES work and here it is .

When someone starts on this I'm just going to turn off because it's unmitigated BS. Pure ego talk.

Dont know where you get the ego inference from,I certaintly completely believe that these discussions and my input are varifyable,honest proven trading methodology.Its success has been fantastic and as its the only live varifyable method available for discussion to which I refer to and countless others use as a bench mark----everytime I refer to it I'm LABELLED EOGOTISTICAL.--thats the purist of B/S. Duc honestly believes his theories and is constantly testing/discussing them I dont think his posts are ego driven when instigated---a bit jumps in during discussion--but all in all think they are adding to ASF.

The are a hundred ways to skin the market cat and all work, if the practitioner knows how... same as any business.

This is where we do differ.
You are dead right---however most small business and novice traders dont work with numbers.Most small busineses wouldnt know a Quick Ratio from a positive expectancy calculation.Most small businesses fail or underperform,so do most traders.I've been in business 30 yrs and when I understood the "NUMBERS" of business It doubled for many years and now has positive growth most years.I've been trading 12 yrs--same here.
So I pass it on with varifyable discussion NOT THEORY.

People can trade as they wish if they can see the merit in my work fine,if not fine as well.

Crackaton

Think youre snaffled.
While you can claim forward paid tax as a deduction you still have to pay the tax on $$s earned.So if you use the money you may not be able to pay the tax.

On Margin calls.
You can liquidate some of your stock holdings to honor a call.Dont have to sell all.Once you get up and running a call should be rare as hens teeth as your profits will keep you well within terms.Of course you can re invest profits (I Do).

Bulldust

Thanks for the patronising,and another quality post adding depth to the discussion.
Rosella has touched on the way I use Equity loans and margin.
You can have the best of both worlds with minimal risk and piece of mind.

But hey I wont go into how I use them as it would only be seen as egotistical.
Particularly if I talk about 3 methods, 3 equity loans and 9 securities.

Retirement doesnt guarantee Business Savvy,just as a knowledge of Fundamental company analysis doesnt guarantee successful investment.

 

[tech/a]

Wayne/Others.

Rather than dismiss as B/S why cant there be constructive presentation of why you think this is the case,with evidence to support your veiws?

I and I'm sure many others would be all eyes.

 

[RodC]

A margin loan is revolving credit, basically with no limit, you don't need to re-apply for larger loans as time goes by

Unfortunately this varies with lenders. BT automatically increase your limit as the values of the holding increase. But with comsec you need to apply for an increase in credit limit. I don't know about the others.

Rod.

 

[rozella]

Thanks for that Rod, I was not aware of it. I don't deal with them. It sounds like a hassle that should not be required.

Do they have the option of capitalising the interest & brokerage to the loan ?

 

[RodC]

Yes, interest and brokereage can be capitalised to the loan, exactly the same as for BT.

They also charge a $10 transaction fee for each buy/sell which somewhat negates the low $19.95 brokerage.

Rod.

 

[bullmarket]

Hi rozella

G'day bullmarket,...................

...............This is all my own opinion, but until you are disciplined & have a consistant winning strategy, there is no point to any leveraging.

Yes :iagree: 100% with you re having discipline in investing/trading before contemplating using borrowed funds (equity loan, margin loan, personal loan or whatever) for investment/trading purposes.

But imo one's ability to apply and stick to discipline can be tested during paper trading (the pros and cons of which have been discussed elsewhere) and while using their own non-borrowed funds.

I see a margin call as an enforced pseudo stop loss. If one is disciplined in keeping their losses small then imo they should be able to apply stop losses themselves without having to rely on margin calls to teach them discipline as you suggested.

But as you said, it's each to their own and my personal preference is to use equity loans for borrowing to invest (assuming of course one has equity in a suitable asset) and if someone then wants to borrow beyong their equity then they can always look other loan options available to them. I don't see any problem with that as long as interest repayments can be met comfortably after allowing a buffer for potentially rising interest rates.

cheers

bullmarket

 

[rozella]

G'day bullmarket,

But imo one's ability to apply and stick to discipline can be tested during paper trading (the pros and cons of which have been discussed elsewhere) and while using their own non-borrowed funds.

I can't agree that paper trading will test discipline, however, it will test the strategy.

I see a margin call as an enforced pseudo stop loss. If one is disciplined in keeping their losses small then imo they should be able to apply stop losses themselves without having to rely on margin calls to teach them discipline as you suggested.

Yes, they should be disciplined, however, the threat of a margin call will ensure that they are.

 

[bullmarket]

ok no problem rozella

We'll just have to agree to disagree but I accept that in some cases paper trading may not realistically test one's discipline to stick to their plan but imo if you can't stick to a plan when paper trading then there is even less chance you will stick to it when under additional 'emotional' stress when commiting real funds.

But having said that I know of cases where paper trading has been beneficial and provided useful information when they were starting out. The usefulness of paper trading depends a lot, I suppose, on peoples' temperament and attitudes.

There are people (whether they are in a minority or not I have no idea) who have successfully taught themselves how to set and be disciplined enough to stick to stop loss levels during paper trading which would have helped them greatly to protect their capital when commiting real funds. They didn't have to rely on suffering margin calls to teach them discipline.

Imo paper trading is just one option you can use to test/teach strategies/discipline provided of course you have the right aptitude, temperament and attitude

cheers

bullmarket

 

[It's Snake Pliskin]

G'day bullmarket,


I can't agree that paper trading will test discipline, however, it will test the strategy.


Yes, they should be disciplined, however, the threat of a margin call will ensure that they are.

I totally agree with rozella.

 

[wayneL]

Wayne/Others.

Rather than dismiss as B/S why cant there be constructive presentation of why you think this is the case,with evidence to support your veiws?

I and I'm sure many others would be all eyes.

https://www.aussiestockforums.com/forums/showthread.php?t=2958

 

[rozella]

G'day again bullmarket,

By having a healthy discussion on this subject may help others that are thinking about leveraging.

They didn't have to rely on suffering margin calls to teach them discipline.

I did not mean to actually wait for a margin call to happen. I mean more like a "policeman on the beat" knowing that if you don't keep your portfolio tidy, the marginlender will contact you. They are helping you as well as themselves.

It has disciplined me as a trader, yet I have not ever received a margin call, & I suppose it sped up the learning process.

For a margin call to happen, firstly you must have gone past your credit limit, & secondly gone past your buffer which depending on the marginlender is 5% to 10% of your total portfolio value beyond your credit limit. i.e 105% or 110% of available credit. So an extra-ordinary situation must happen for you to have a margin call. I like to maximise my return on capital, so I am in & out of the buffer zone on a daily basis, yet no call.

Extra-ordinary situations do happen, such as the terrorist attack on America in 2001.....I was in the buffer zone on 3 separate margin loans when this happened, but unwound my trades gradually without panic (but concern as expected) over the period before America resumed trading, then was back in the market 100% within 2 weeks at very low prices. As it turned out, I had the best trading month in my history the following month of October.

In this situation, if I had an equity loan, there would have been no pressure upon myself to act, not saying that I would not have acted, but I had a very good reason to act. And as it turned out in hindsight, prices came back up in October, but they may have lingered for some time. Those that did nothing mostly came square or a little better, & those who sold down & re-entered at very low prices did very well, but that part is not a margin loan issue as you well know.

 

[bullmarket]

hi rozella

No problem I think we both agree that a strategy and discipline are a must-have prerequisite before using borrowed funds be they an equity loan, a marging loan or whatever for investing or trading.

We seem to disagree on the merits of paper trading and types of loans, but that's fine.....paper trading and types investment/trading loans definitely come under the heading..........."each to their own"

cheers

bullmarket

 

[rozella]

We made it bullmarket,

It would be a boring world if we all agreed with each other.

Cheers