I Took A Margin Loan!

I’ve been in the stock market for more than a year now and I must say that it’s been a roller coaster ride since I plunged in. The stock market hit its highest points in July 2011 breaking the 4,500 barrier and also hits edgy lows that even the most patient and disciplined investors commit mistakes when the market dived below 4,200.

For more than a year I’ve been studying the stock market in bits and pieces. I gathered all the information I could get and make a summary out of it. I have several books on investing and really filled my cup with information that would lead me to a conclusion on how I can profit from the stock market.

Since I am an employee, my funds are limited to the salary I get every month and the bonus our Company is giving every year or sometimes twice a year. From these funds, I am allocating a portion of it every month to buy stocks. Stock market became my savings account. Nevertheless, as I studied and recognize the different cycles, factors and psychology of the stock market, I became more confident in my knowledge about it. I recognized the buying opportunities during crisis but the problem is I don’t have funds anymore. I need to find a way on how I can get more money because crisis is always a buying opportunity for me. Later on, I would sell them for a profit.

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The first thing that came to my mind is to borrow a loan from the bank with a low interest rate. Since I work here in Dubai, I gather all the rates from different banks here and checked whether it will suit my purpose. No bank fits my criteria of a low interest rate and that I would only pay the total principal and interest at the end of the year or twice a year. Banks will never allow that of course. In their normal banking transaction, monthly payment is the customary way of paying loans. No more, no less. Aside from the difficulty I encountered in my criteria, I would need to sell a portion of the stock every month to pay the monthly payments of the bank if I took a loan. That is not good for me administratively and financially. I need to instruct Citiseconline to deposit money in my bank account and then ask my family to remit the money here in Dubai. Charges will be there and my family’s time may not always be 100% available when the time to remit the money comes in. I may miss paying my monthly payment. Another one will be, when the monthly payment comes in, the stock market maybe at its lowest level, thus I may incur heavy losses if I pursue the loans here. Thus, I forget about borrowing from the bank here in Dubai.

I thought of something that would fit my criteria. Obviously, I cannot borrow from the bank in the Philippines since I live abroad. That’s another X. Finally, I bumped into Citisec’s margin loan. My criteria are low interest rates, payment of principal to be made once a year or at your discretion, less administrative work, and loan amount I am capable of paying. After reading much of the Citiseconline’s marginal loan fine prints, I came into conclusion that it would fit my loan criteria with some minor downsides which I can totally tolerate.

Interest Rate – Citiseconline’s interest rate is an exceptionally high 18% per annum or 1.5% per month. This is so high considering that you can borrow from some banks at less than 10% per year here in Dubai. Nevertheless, I accepted it. My reason is that as long as the stock I will buy from the loan will go up more than 2.76% per month, then I will be okay. With the current situation, I am betting that stocks will surely go up. So, no problem about it, bring on the interest rates.

Payment of principal – your principal can be paid at your discretion as long as you don’t exceed the 50% limit of the equity balances. If this happens, Citiseconline may be forced to sell your equities at their own discretion so that they can settle your liabilities to them. My plan is to take a loan which is around 50% of my current stock. In a worst case scenario, I will still be able to pay the loans. Passed.

Administrative Work – I only need to e-mail Citiseconline regarding my application, send them the hard copy through courier and wait for them to approve my loan. That’s it. After approval, you can buy the stock you want and pay the loan you want through online communication. No hassle for me since I worked 99% of the time in front of the computer.

After a few days of computation and analysis of what’s going with the stock market, I applied for a marginal loan. Basically, I took the margin loan from Citisec’s because it is so convenient and I can play with it. No more, no less. Less than two weeks later, my loan is approved. It’s buying time now in the stock market.

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This decision occurs only because of a very rare opportunity to cash in the stock market. In very normal conditions, I will never do it. In fact, I do not like loans! The interest rate I am paying to the bank just doesn’t make sense especially if it is for personal consumption. My credit cards are being used for paying utility bills to lessen administrative work but I pay them even before the monthly statement. Thus, I am not paying any interest on my credit cards. I even ask the bank to waive my annual fee and they did. I have seen how loans destruct people’s lives and relationships in my own very eyes. I do not have to look farther because I have a close relationship with them. And that’s what matters to me, relationships. Loans are only good for business, that’s it for business only!

The loan I took in business terms is also called leverage. Margin Loans, Leverage and Debt are all the same. “Pinapaganda lang ang pangalan”. They are all loans and you need to pay them the amount you owed plus interest.

After two month of using the leverage, I finally paid the principal and interest. My profit is an astounding 10% of what I loan. Not bad.