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Mandatory warning: I am taking risk, only take leverage if you have assessed yours, and never take more than you can handle. My solution works for me because, being at the early stages of accumulation, I can pony up collateral cash in amounts relatively consequent relative to the size of my leverage. I would probably be more cautious if I didn’t have this ability.
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Lombard loans don’t provide the kind of leverage I need. Not all my assets are used as collateral (I’m using stocks in my 3a pillar as part of my calculation regarding how much total exposure I want, so I am way over the pure 1.4x leverage of my liquid assets). I am targeting a x3 actual leverage as a risky but acceptable level, x2 would be a safer one. I am currently at x7 on my assets put as collateral, which is way over the “safe” level but brings me at my target exposure.
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I’d ideally use futures, they’re regulated, have good liquidity, offer cheap leverage. My ideal situation would be investing in SMI futures through IBKR. The choice of SMI futures is because I don’t want to have anything to do with regulated US assets and they’re easier to handle than a more global basket of futures using several indexes/ETFs. I’m at ease with the concentration risk, other people might not be.
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As I’ve started with very low amounts, and initially wanted to short the market, I’m currently trying my hand at CFDs. CFDs are not regulated, they are basically an agreement between you and your broker, with your broker betting against you. If your broker wants to screw you over, they can, and your only recourse will be paying a lawyer and going to court (where you are not guaranteed to win because your broker can be subtle about screwing you if they want to). For that reason, I feel better with a swiss broker (I’d rather go to a swiss court than deal with a legal system I don’t understand), so I’m using CornèrTrader.
I don’t recommend CornèrTrader and I don’t recommend CFDs. They happen to suit my purpose, which is extremely risky. Chances are they may not suit yours.
- I am using CFDs on the Nasdaq and the S&P500 because they are cheap, offer good leverage opportunities and I expect them to have good rebouncing capabilities if the market starts going up in the short term. I’ll keep evaluating if that choice still fits my assessment as time passes.
The basis of my risk assessment is that I deem not increasing my chances of profits at this stage as a bigger risk to my overall wellbeing than the risk of loosing the few assets I currently have (being close to apparent burn-out counts in that assessment). I am willing to risk loosing all (and some more), and might very well with this strategy. Others may have a different risk assessment and deem the risk not worth the potential prize.
As a side note, leverage is becoming more expensive as rates go up, so that should be taken into account too.
As another side note, using leveraged assets (options, futures or CFDs) puts you out of the safe harbor zone regarding being taxed as a professional investor. That should also factor in your personal assessment.