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  #21 (permalink)  
Old 29-03-2017, 05:55 PM
kkseal kkseal is offline
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No compounding I simply divided the 12-15% interest into monthly component. The original poster got a reducing balance loan where the effective outgo was around 9.5% (in a higher then current int rate regime).

Portfolio calculations irrelevant as you have monthly EMI commitments So this is more for TRADING capital (the biz analogy is WORKING capital not 3/5yr capex). However portfolio return can act as an addl buffer.

Not opining this ought to be the only form of trading capital either Your own capital is the equity you've put in and debt:equity should not exceed 1:1. Like wise a good/optimal interest cover is 3-4 Tht's from FA Technically reward-risk of 3:1 is good So trading gains
preferrably 3X of intrst or 3-4% per month.

And if you're not making the long term avg indx return of 15% (even on your portfolio), then you're better off putting money in Index fund instead.
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Old 29-03-2017, 06:18 PM
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First of all, try to find out who is going to lend at the rate of 1 - 1.5% p. m. As far I know, banks won't lend any money for share trading. Borrowing must be from private financiers. I doubt whether any private financier will lend at such low rate, that too for such a short period. Unless one is very sure about this, the whole thing will go wrong very wrong. Whole calculations will be upset.

So it is very clear now. Money is to be borrowed for trading and not for investing. I stop here. All that I can say is that test your trading results during all three phases of market for several years, if one is still having energy and enthusiasm for trading after several years of active trading. For novice traders full of energy and enthusiasm, trading on borrowed money is a strict no no.
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Old 29-03-2017, 06:24 PM
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Originally Posted by kkseal View Post
The original poster got a reducing balance loan where the effective outgo was around 9.5% (in a higher then current int rate regime).

Just a guess. Did he borrow money showing some other purpose and then diverted it to trading? That will be purely illegal.

Just curious to know. What happened to him after 2008 crash? Is there any update?
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Old 29-03-2017, 07:19 PM
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Originally Posted by kkseal View Post
No compounding I simply divided the 12-15% interest into monthly component.

Portfolio calculations irrelevant as you have monthly EMI commitments So this is more for TRADING capital (the biz analogy is WORKING capital not 3/5yr capex).

A few things require clarification here.

See the first sentence. Does it imply that one is going to borrow on monthly basis? I mean, say, first day of every month, repay the loan by the end of the month and then borrow again next month?

Or else, it will be borrowing on longer term basis, which will have compounding interest.

If it is borrowing on monthly basis, how to decide on which month to borrow and when not? Basically it amounts to guessing index/stock return in that month. Is it not? Just see how many moving parts are there.

Now see the second sentence. It implies borrowing for longer period. A loose analogy can be that of an overdraft account with bank. Again interest will be compounding.

Now take the concept of borrowing as a whole. Re read the article cited in the first post. See the psychological weakness which undid the software engineer. It is the success which prompted him to borrow more and more and when his greed was at peak perfect storm washed him away. This will and is bound to repeat in every cycle. Why? Because, the very concept of borrowing and trading to riches points out insatiable greed for money. There is no way such a person be satisfied with any amount money. It is like drinking salt water by a thirsty man. The more you drink, more thirsty you will be. But the worst part is that when the reversal occurs, it takes away all. It will just be a wishful thinking that "I will borrow only X amount of money/month. I will not exceed the limit of borrowing" etc. Unless one is greedy, one will not take such a step in the first place. Mind is the biggest question mark here. Again, if one suffers loss, one doesn't know whether it is temporary and he will be back again next month or not.

Again, I am curious to know how this concept of borrowing money and trading in stocks is different from investing one's own money in derivative trading? There also borrowing involved, but in a different form.
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Old 29-03-2017, 09:18 PM
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Borrowed money in EMI & investing in Mkt is one thing & Leveraging that money in Futures Mkt is Highly risky demands Algo with > 80 % success rate
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Old 29-03-2017, 09:54 PM
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IMO: its gimmick i guess so. but u can do same if u have good algo. where u knows and measured actually the risk behind ur trading decision else it will be super risky.
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Old 30-03-2017, 12:14 AM
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Originally Posted by uasish View Post
Borrowed money in EMI & investing in Mkt is one thing & Leveraging that money in Futures Mkt is Highly risky demands Algo with > 80 % success rate

U need not use that in futures This guy was trading in cash. There's BTST for shorter horizon. On the short side though there's no other option than F&O But in 2008 kinda crash a way OTM Put got ITM in no time with premium going thru the moon So you can keep your exposure small. And the 3-4% yield i mentioned is on your entire trading capital So if your debt:equity is 1:1, 1.5-2% yield on the borrowed part is optimal. If this much is not do-able monthly then i don't know what we're doing (emanating useless gyan). The minimum break-even requirement is even smaller (but then you borrow to make some net gain, not just payback).

Also if you're only accustomed to futures can always keep exposure down to 1/leverage (or a little higher.) Part of the idle money can be put in short term bonds.

Another thing that struck me is the 5-day margin i've been doing On this interest is charged T+2 onwards (with some brokers from T+1 itself). Although the interest seems small annualized it turns out to be 18% Far more than this guy was paying on his PL. Plus there is the time constraint If it doesn't move in desired direction within the 5days i either have to get out or convert (or part sell part convert) to delivery. No such constraint with an off-mkt loan.
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Last edited by kkseal; 30-03-2017 at 12:17 AM.
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Old 31-03-2017, 02:28 PM
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pre approved lelo int kaam dena padega if u can or allowed.
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Old 02-04-2017, 11:40 PM
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I would again suggest everyone to re-read the original article and put it in context of the date when it was published. Around 2-3 weeks before the start of a major bear market.

This is the kind of things you see near the top of a bull market. When everyone becomes a stock guru. When people start having great brainwaves about using all sorts of fancy money management rules. That original article author's 2 assumptions below:

1. He will have a job for the duration of the loan, so if push comes to shove, he will be able to service the emi irrespective of the condition of his portfolio. This is also somewhat covered byt he loan agency when they give out unsecured personal loans.

2. He assumed that indian bull market story would go on for the next 4 years. This is the part where he made major errors. And as rightly pointed out by rsi sir in his post above, we see this kinda things near the top of a bull market.

Now coming to taking loans for margin money. I believe that if you have a long term sustained track record of making profits, then you can do it. Those who can do it already have funds available for them. If you are a consistently profitable trader, then many stock brokers can front you margin money for trading provided you can cover for any losses.

The main option that most such traders would rather take is to manage other people's money. There you can get a very good deal if you are reasonably profitable with a largish fund size. The typical deal will ensure that you will only get a share of the profits, while all the losses are borne by the investors. Why would I consider taking a loan for my margin money if I can get a investor to put in big funds and be paid only when I make profits?

-- no1lives4ever
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Old 03-04-2017, 02:21 AM
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Originally Posted by no1lives4ever View Post
Now coming to taking loans for margin money. I believe that if you have a long term sustained track record of making profits, then you can do it. Those who can do it already have funds available for them. If you are a consistently profitable trader, then many stock brokers can front you margin money for trading provided you can cover for any losses.

-- no1lives4ever

I borrowed money to increase my trade size, because all borrowed money is usually blocked against options written. Contrary to belief that option writer's enjoy "easy" ( loosing ) money, i decided to borrow after i sustained on 1.75% p.m. on (borrowed money) blocked margin.
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