Can we get a recent update on this @Barto. Were you able to withdraw the funds from IBUK? Thanks
Since many years I have a strategy that is based on margin loan. The money management includes a margin loan to rise the risk and the performance. It is a stock-only strategy.
Everybody in Switzerland (or almost everybody) takes a mortgage when buying real estate. Since the 80âs there has not been a bust in real estate, so a whole generation does not know what that is. However there were some bear markets in equity.
Around the world there were many real estate bubbles just like the current one in Switzerland and they did pop at one time or another.
The risks are not foreseeable, not in stocks and not in real estate, anything can (and probably will) happen. Once the market value goes down the bank/broker will ask for more money or sell your house/stocks.
Now, stocks are more liquid than real estate and can be sold in parts; so the risk is easier to manage than with a mortgage on real estate.
Portfolio margin at Interactive Brokers gives you up to 800% margin, which is insane. But you need reserve, so the higher the better. I control the risk real time with an easy calc-sheet. I define how much margin I take at the beginning and how much margin I will allow. That must be way under the limit the broker sets. I call this my personal stress tolerance. Once the maximum margin is hit I start selling myself, way before the broker would.
Formulas: D=Debt, Mmax=maximum margin before you have to act, Vmin=minimum value your positions may fall to, V=actual value, ST=Stress tolerance. That much your positions may lose before you have to act.
Vmin=D*Mmax/(Mmax-100%)
ST=(V-Vmin)/V
Example: you have 100â000 and want to invest 120% on margin. You want to get out at 300% margin. You need a margin loan of 20â000.
Vmin=20000*300/(300-100) = 30000
ST=(120000-30000)/120000 = 75%
You have a stress tolerance of 75%. Bear in mind that in this example you lose 90% of your capital before you have to take action! The stocks did only go down 75%, but the margin leverages that. Without margin you can lose close to 100% without having to take action and therefore have a stress tolerance of almost 100% (the broker probably would close your account if all your holdings go to zero and there is no cash leftâŠ).
Finally a few words on tax: debt is added when deciding if you are to be considered a professional trader. No difference if the debt is a broker margin loan or a mortgage, none. If your taxable income from those investments on credit is lower than the debt interest you pay you may be considered a professional investor. But this happens very rarely, I donât know any case. And it may change soon when we cannot deduct debt interest any longerâŠ
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