Was wondering how professional traders who making a living by their trading activities treat margin. Or specifically paying themselves a steady cash payout from Margin when necessary. And if doing so, how that changes or influences your overall strategy in paying it back. Did you start by living on your margin loan, or wait until you had an unexpected expense?
To live on Margin, or not
- Thread starter eaglefeather
- Start date
I look at my book the same way I look at the balance sheet of any other firm. Margin loans are just one of the sources of funding, and I try to minimize my overall funding cost so that it's easier for ROI > cost of capital. I don't look at my expenses coming from margin financing vs otherwise, if anything they come from my equity/NAV. The decision to increase or decrease my balance sheet through margin are a function of funding costs, investment opportunities, book structure, etc. But I don't run on nosebleed margin ratios like I suppose others might.
In theory too, we are talking about well hedged portfolios. Another thing is that using margin for cash is way safer than using margin to open position.
That’s a good saying for every trader regardless of experience.
HF’s blow out because of margin loans, so what makes you different? You’ve got to answer that before you go above and beyond Reg-T.
That's a rather cynical, pessimistic, dark, sluggish view...
I personally like to think of it as...Live on margin/leverage/options/etc/misc...Prosper X20,
But, of course, with the increased level of risk/rewards...you need a much more refined process and skill and tactics and approach and mind,
When I was younger I blew up my account trading on margin, learned about risk of ruin the hard way. Have since stayed away from it, but now that I have my system down, seems margin is an under rated resource, or can be. As long as you can sell enough premium to pay it back.
LOL, I was going to say that. Seriously though, nothing wrong with margin. Just never get a margin call. Instead, get out of your trade.
There has been no activity on this thread for a while, but I would say most traders fall into two camps; extremely cautious, and those who know how to effectively use margin while at the same time managing risk. I have mostly been a part of the extremely cautious camp until lately. It all depends on your real risk if you have properly hedged your positions. If you use a large percentage of your margin to purchase or short stock, it's not the same as if you do so with offsetting options to manage the risk.