![]() "One of the great myths is that share prices will go up forever. If you borrow, you have to ask if the cost of credit will be more than covered by gains in asset values," he warns. "The numbers will be stacked against anyone bor rowing to buy equities. It is for the more sophisticated, but because you can borrow when you see a purchase opportunity, you have more control over your decisions."īut David Kauders, a financial adviser from Taunton who has £22m under management including a number of £500,000-plus portfolios, believes that whether investors are sophisticated or not, most will end up losing. There is far more investor discipline needed than if they borrowed from a bank or a credit card. Waterhouse's Bharat Masrani says "the risk and credit controls make margin trading a highly structured product. It does exist in the US where investors are more experienced and prepared to take more risks and while we offer it along with most others, it is still small." This is something for the sophisticated investor with a broker who gives advice. He says: "Our lines are not buzzing with demand. It encourages investors to over-extend themselves."Īnd at rival execution-only broker DLJ Direct Paul Lubbock wonders where the demand will come from. Schwab's line is that gearing up to trade margins "doesn't further sensible investment habits. Others such as internet broker E*Trade could follow, although rivals Schwab and DLJ Direct have both ruled out a margin move. ![]() It had already scooped up the execution-only Yorkshare from Yorkshire Building Society. The planned Waterhouse move follows its £82m acquisition earlier this month of Dealwise, a no-advice share dealing operation, from Skipton Building Society. In some cases, brokers will forcibly sell other holdings in your portfolio to meet margin calls. Here the bigger the loan, the greater the losses. And because brokers offering margin trading insist you pay up your losses as you go, you cannot sit back and hope for a share price rise. The bigger the loan, the bigger the gain.īut what if you are wrong? Then you end up paying your losses plus your interest and dealing charges. You sell, and the £100 less interest charges and dealing expenses goes into your bank account. ![]() If, a week later, they go up 10% your holding is now worth £1,100. ![]() If you think shares will rise, you borrow - say £1,000 - and buy. Waterhouse has not yet set a rate but it is likely to be three to four percentage points above the bank base rate - currently 6%. Stockbrokers are banned from taking credit card orders - net deals are financed by purchasers keeping cash balances with brokers or via debit cards.īut in the autumn, TD Waterhouse intends offering loans for "margin dealing" where investors borrow at commercial rates of interest to buy shares which they might not otherwise afford. Many rival brokers have slammed the idea, while Financial Services Authority boss Howard Davies has warned that borrowing to buy shares "adds risk to an already risky environment".Īnd beyond the risks, a top financial adviser believes that interest charges will outweigh gains from borrowing to buy equities. Online share dealer TD Waterhouse plans to offer loans for "margin trading" this autumn. ![]() Later this year, they'll be able to borrow directly from their broker - and at lower rates than those offered by credit card providers. ![]()
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