Leverage

Discussion in 'Options' started by uptickk, Feb 6, 2010.

  1. uptickk

    uptickk

    I was wondering if many traders use leverage beyond what the normal financial products allow (options, futures, etc.) by taking out bank loans, lines of credit, etc. I specifically trade vertical spreads and margin is limited to what you can lose which is a good thing but I was wondering how people obtain additional leverage and what the rates are on the specific funding.

    Please spare the disclaimer about how leverage is a double edge sword as I am inquiring soley for knowledge

    Thanks
     
  2. l2tradr

    l2tradr

    I have used it occasionally in the past, not too often now. I have transferred my line of credit to my brokerage account and use it intraday only if an opportunity came along and cash was tied up elsewhere. Since this was done rarely and the transfer was done back to my LOC the same day, any interest would have been nothing; I think the interest on the LOC was between 3.75-8% depending on prime rate, so the daily was a few bucks. Not enough to take it into account for an intraday trade anyways.
     
  3. Yes, but if you do not grasp this, then people are not necessarily in a hurry to provide this "knowledge."

    We get a steady diet of learner wannabes who are like a 3-year old waving a loaded gun.
     
  4. Futures are leveraged instruments traded on margin.
    Intraday margin as low as $300 to trade ES.
    Account Minimums vary, as low as $2500.

    One ES = approximately $55,000 contract value.
    200 x 1 margin already available for those who choose this route.
    Be careful with personal guarantees in your trading terms.

    With $10K you can theoretically trade 30 contracts intraday.
    You will need 20x this amount to hold over night.

    Financing so you can carry profitable positions over night to ride out a trend or maximizing profit taking is a possibility. Financing to carry losers overnight hoping for a reversal is a painfully dangerous game. If you trade both sides of the market in sub accounts your broker should be able to margin the net account positions.

    It may be cheaper and safer to simply sell the position and buy it back near the start of the new session. ie. if overnight margin is $6K per contract... instead of putting up $60K to hold 10 contracts open you may be able to sell near close and buy it back in the new session for just $5 in trading costs. $50 versus tying up $60K...
     
  5. Pattern day trader rules give you 4:1 leverage intraday. You can go 100K of equities with 25K (minimum) and be able to turn it over as often as you like.

    I've never gone out 4X but I have turned it over several times in a day - it's more than enough for me.
     
  6. uptickk

    uptickk

    Thanks l2tradr . . that was along the lines of what I was looking for