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Can/should one take out a loan to meet day trading requirements? Possible? Opinions?
At my current rate I'll be able to save up enough money to meet day trading margin requirements in about a year. I'm currently wondering if it would be worth taking out a loan to get in a year of experience early. I'm curious as to if banks/lenders offer loans for investing and as to what rates they are. I'm also interested in personal opinions on if this is a good idea or not. Thanks.
More information about me and my situation can be found in my introduction post in 'Beginners and Introductions'.
-Brandon
Can you help answer these questions from other members on NexusFi?
Sounds good, I was thinking the same thing. I've got plenty of time to develop algorithms and do sims for now! When I come into the market I'll come in with a bang and a wealth of knowledge (hopefully).
Although I was more interested in trading on my own money, where the loan would simply sit in my account as a base to allow me to meet the requirements and only invest in non-leveraged positions. But who knows, I could get a bit cocky one day and put in more than I should have.
Yeah, don't even think about taking out a loan. I noticed your favorite instrument is the SPY though.... If you are interested in only jumping in and out of the SPY on a consistently daily basis, look at trading the weekly Deep-in-the-money options.
If you are trading options in a non-margined account, then the day trading rule does not apply. With options, since you never owned the actual stock when you bought the instrument, your funds settle overnight so you can start buying and selling the very next day (when day trading stocks, it takes 3 days for your funds to settle so you can't reuse that same capital to enter and exit a new trade for three days)
Deep-in-the-money options have a high delta. In laymen's terms, the delta is how much profit you make if the underlying moves a dollar. Basically right now for about $525 you can buy a deep in the money option on the SPY with a 0.92 delta. This means that for every dollar the SPY goes up, you gain $92 and vice versa.
If you are just trading the SPY (or another extremely liquid stock, you should be good to go.
Some things to note though
1.) This is just a brief breakdown of options. You need to do your own research and paper trade extensively
2.) Just because you can afford to buy many Options contracts does not mean you should. In fact, you should only trade one contract initially because one contract is the equivalent of owning 100 shares of the SPY. That is around $15,300.
That's actually what I currently do. I previously traded OTM weeklies, but that was just silly and stupid. I've since then been using my cash in a round-robin approach to get in 3-4 trades a day on options. However, I don't like theta... for now I think I'm going to do some simulations and algorithm development until I'm ready to fund a day-trading account.
Meaning, forget about being capitalized, forget about making money, and learn to trade. If you can trade, if you can actually put up the results, the money will follow. I have yet to hear about anyone who is legitimately talented, but doesn't have a dime to trade. The beautiful thing about leveraged products: if you are talented, but under capitalized, you won't be undercapitalized for long.
Like I always say, dont' trade with any money you can't afford to lose. Statistics are not kind: 99% of everybody who attempts trading does not success in the long term. That includes plumbers, doctors, athletes, scientists, store clerks, .... Most people are out of the game in a few months. How much preparation have you done to determine whether you have a good strategy? What is your approach to trading - do you approach it as gambling, do you take a more methodical approach. Have you backtested? Have you researched all the different ways that you can lose in different market conditions?
If it takes you a year to save, then it will take you a year to pay back the loan? Are you prepared to do that considering you may lose the money in two months?
The answers to these questions will help you decide whether it's a good idea for you or not. I'm not saying don't trade. I'm saying, it's prudent to make sure you know what you're doing before you do it with real money, and doubly so before you do it with borrowed money.
Yeah, I've had quite a bit of experience on the markets with real money however I have more research to do before I'd put so much on the markets. Preferably I'll automate almost all of my trading and get rid of emotion, or at least have an automated process in charge of cutting my losses, as that is probably my hardest decision.
For now, I have plenty of research to keep me excited and learning!
