Leveraged share dealing accounts

Sharedealer123

Where can I find a share dealing account where you can put down a deposit to buy shares and then borrow the rest from the broker? I don't mean spread betting where you don't actually own anything and you just bet on which direction the shares will move.

Windofchange

Do you mean options?

http://www.investopedia.com/terms/s/stockoption.asp

Tcquins

Probably referring to CFDs or contracts for difference as they're known.

Not for the faint hearted!

Malthusian

Sharedealer123 wrote: »

Where can I find a share dealing account where you can put down a deposit to buy shares and then borrow the rest from the broker?

Not on a forum entitled "Savings and Investments", try "Gambling" or "People who want to lose money".

If you don't like spread betting then why are you keen on buying shares on leverage? It's exactly the same deal, you can wager more money than you have, but that means the dealer can take more money than you staked when it goes wrong.

steampowered

As I understand the Op, he isn't asking about CFDs or derivatives. He is asking about leverage to purchase stocks.

Buying shares using leverage is not the same thing as purchasing a CFD. As I understand it, you only get a return on CFDs based on share price movements. Buying shares is longer term investment than buying CFDs and will get you the benefit of dividends over time.

It is no different to a buy-to-let mortgage - you are borrowing money to purchase an investment. Except the investment (and the security for the debt) is shares rather than a house.

I'm no expert but I haven't come across an easy way to access leverage for share investments in the UK. Which seems crazy to me, given that leverage is easily available if you want to buy CFDs or derivatives. You can get a share trading facility through private banks though.

jimjames

steampowered wrote: »

I'm no expert but I haven't come across an easy way to access leverage for share investments in the UK. Which seems crazy to me, given that leverage is easily available if you want to buy CFDs or derivatives. You can get a share trading facility through private banks though.

Very easy way. Take out a personal loan at 3% or whatever and use that to buy the shares

steampowered

jimjames wrote: »

Very easy way. Take out a personal loan at 3% or whatever and use that to buy the shares

Yes, this is an option. I use 0% credit cards and while the 0% period lasts I invest the money saved to earn a return. The difficulty with personal loans is that you can only get a good rate on small amounts.

Malthusian

steampowered wrote: »

It is no different to a buy-to-let mortgage - you are borrowing money to purchase an investment. Except the investment (and the security for the debt) is shares rather than a house.

Except that shares are more likely to plummet to zero than houses are to completely lose all value (without being covered by landlord insurance).

Also, I don't believe there is any equivalent to a "margin call" in buy to let. If the market value of your BTL house plummets by 50%, the mortgage lender just has to hope you keep paying the mortgage. They can't demand you find 20% of the house's value out of your own pocket in order to restore a certain loan to value ratio (the maintenance margin as it is known in geared share trading).

The big difference between BTL and share trading on margin is that relatively few people who have bought BTL with a mortgage have lost their shirt by doing so. It takes a very bad choice of asset and bad management of it. People have managed to make a good investment out of leveraged BTL even if they don't really know what they're doing, which is why it's so popular in this country, for better or worse. By contrast, with share trading on margin, everyone who doesn't know what they're doing loses their shirt, and so do many of those who do know what they're doing. The market can stay irrational longer than you can stay solvent.

steampowered

Malthusian wrote: »

Except that shares are more likely to plummet to zero than houses are to completely lose all value (without being covered by landlord insurance).

Not true if you buy a balanced portfolio of shares. Neither the FTSE 100 nor any other major share index has gone down to zero or anything like it. Losing all of your money on shares is only possible if you put your entire portfolio in just one or two shares.

Also, I don't believe there is any equivalent to a "margin call" in buy to let. If the market value of your BTL house plummets by 50%, the mortgage lender just has to hope you keep paying the mortgage. They can't demand you find 20% of the house's value out of your own pocket in order to restore a certain loan to value ratio (the maintenance margin as it is known in geared share trading).

True. Although if you do get a margin call (only likely in highly leveraged portfolios after a dramatic market collapse), you can pay it by selling some shares - you don't have to sell the entire portfolio.

The other point is that many CFD brokers offer 50:1 leverage on CFDs - or 98% leverage. That is why CFDs can be so much more dangerous than shares. No bank will lend you 98% of a buy-to-let, and stock no broker will offer you that kind of leverage on a stock trading facility.

If you stick to borrowing sensible amounts - such as borrowing no more than 75% of your portfolio, the same proportion you would be allowed to borrow in a buy-to-let context - you'll be fine.

The big difference between BTL and share trading on margin is that relatively few people who have bought BTL with a mortgage have lost their shirt by doing so. It takes a very bad choice of asset and bad management of it. People have managed to make a good investment out of leveraged BTL even if they don't really know what they're doing, which is why it's so popular in this country, for better or worse. By contrast, with share trading on margin, everyone who doesn't know what they're doing loses their shirt, and so do many of those who do know what they're doing. The market can stay irrational longer than you can stay solvent.

I don't agree with the statements you make on leveraged share trading. Noone has ever lost money over a 10 year period by buying a balanced portfolio of shares.

The kind of heavy losses you are talking about only happen on share investments where people put all of their eggs in one basket - either a single industry (such as .com investments before the .com boom) or in a very small number of specific shares.

Malthusian

steampowered wrote: »

Not true if you buy a balanced portfolio of shares.

Ah, but most people who borrow to invest in shares don't buy balanced portfolios. They are usually the same people who think they can spot genius buys on AIM. Present company excepted. Not many people will pursue an ultra-high-risk planning strategy and then choose a medium-risk investment strategy within it.

A balanced portfolio of shares can still go down by enough to trigger margin calls and a downward spiral of debt.

Losing all of your money on shares is only possible if you put your entire portfolio in just one or two shares.

...or borrow to invest.

True. Although if you do get a margin call (only likely in highly leveraged portfolios after a dramatic market collapse), you can pay it by selling some shares - you don't have to sell the entire portfolio.

But doing so means you can no longer rely on the fact that a market crash is always followed by a recovery (for a diversified portfolio) - you have to hope it goes up by enough to recover not just the fall, but also the value of the shares you sold at rock bottom.

I don't agree with the statements you make on leveraged share trading. Noone has ever lost money over a 10 year period by buying a balanced portfolio of shares.

A shame that 0% deals on credit cards don't last ten years.

You clearly know what you are doing, but I'm sure you are well aware of the risk that your 0% deal runs out and due to deteriorating credit history or market conditions, the lenders won't let you move it to another one.