Margin Trading

[OkiBum]

Just a bit of background, I am currently investing through Rakuten Securities (NISA account) and mostly hold Emaxis Slim Funds

I consider myself a passive trader because I have set up the purchases to be automatic and investing for long term.

I know debt is generally a negative word but like credit cards, where I pay off my dues every month without paying any interest but at the same time allocating miles / points as benefits I use it as an advantage.

Similarly, is there a way to use Margin Trading to my benefit? I know it is risky because it amplifies the losses along with the gains but does anyone use margin trading? If so, can you share some advice?

Also, do I need to make a different account in Rakuten Securities for margin trading? What ratio of leverage do they offer? Can I use my NISA investments as collateral for Margin in Normal account?

I am not sure if I want to use leverage for trading, but would like to explore the possibility. If I can leverage 30% for a fee of 1-2% and buy index funds which generally have a return of 5-6% then it seems like it can be used as an advantage if I come up with a plan and stick to it.

Of course, if you have negative experiences with Margin Trading, please share that as well!

[Kanto]

If you want a Margin account you need to apply separately.

https://www.rakuten-sec.co.jp/web/domes ... n/startup/

Here is the breakdown of the rates.
https://www.rakuten-sec.co.jp/web/dome ... html#skip5

Yes you can use stocks as collateral. A member of this forum did it accidentally once!
(viewtopic.php?f=11&t=677&p=5577&hilit=margin#p5577)

Remember Margin trading is gambling. You are gambling that the Bull market will continue, and that your overall profit will exceed the fees and interest levied against you.

I would not do it. I would not recommend it to a friend or family member.

[fools_gold]

Wouldn't it be easier to just buy leveraged ETFs?

[adamu]

I know it is risky because it amplifies the losses along with the gains

You said it yourself. In my opinion, this is a slippery slope to a hands-on approach that will lead you to shooting yourself in the foot.

One of the worst experiences you can have with margin trading: being called out to massive losses, only to see things bounce back shortly a while later. If only you had had a slightly bigger margin. Better gamble more next time to make it all back...

If you want to get involved in margin trading / day trading, it's probably better to separate it from your retirement savings and treat it as a separate pool that you're willing to lose. Then regularly siphon off any profits so that you are at least seeing some reward for your efforts.

[Kanto]

Wouldn't it be easier to just buy leveraged ETFs?

I assume this is meant in jest.

Leveraged ETFs are riskier. Your losses would be triple, fees are incredibly high, they are short term instruments.

Regardless, I would not call this an investment. This is a gamble.

[RetireJapan]

I thought about doing something like this by getting one of the Covid-related interest-free business loans that are around at the moment, and just sitting on the cash until it needs to be paid back or there is a large market correction.

Ultimately decided against it because I am too lazy to do the paperwork and also because in a way we don't need it. We might be wealthier by doing something like that, but we could also lose our current assets. Why gamble when you are already on track to win the game?

[AreTheyTheLemmings?]

we could also lose our current assets.

I don't get it. How might you lose your current assets?

[Kanto]

we could also lose our current assets.

I don't get it. How might you lose your current assets?

This is where the risk comes in -> https://www.investopedia.com/terms/m/margincall.asp

[fools_gold]

I assume this is meant in jest.

Leveraged ETFs are riskier. Your losses would be triple, fees are incredibly high, they are short term instruments.

Regardless, I would not call this an investment. This is a gamble.

Half-joking. Personally I wouldn't touch either with a barge pole.

However, I'm not sure if the risks are any greater with leveraged ETFs. There's no margin call to worry about for starters. Either way, you stand to lose a lot if things go south.

[RetireJapan]

we could also lose our current assets.

I don't get it. How might you lose your current assets?

I could mis-time a purchase, ie think that stocks had falled enough, buy them, and then see them fall further. When we had to repay the loan the stocks would be worth less than the principal, so we'd have to sell our other assets to repay the loan. Not saying it would happen, but it's a possibility.