Trading on Margin

[ISF]

If you want to use leverage you are way better off doing it by creating synthetic positions in the options market if your broker is charging you 10%.

[ep510]

My trading strategy has a time frame of buy/sell around 2-10 days. Is this the typical time frame in which trading on margin is a +EV play?

[gull]

I would guess no, because margin is -EV regardless of the time frame. I have no experience with trading on margin, however.

[ubiestmea]

[ QUOTE ]
My trading strategy has a time frame of buy/sell around 2-10 days. Is this the typical time frame in which trading on margin is a +EV play?

[/ QUOTE ]

Its not about what time frame you trade, its about your trading strategy results.

If you have a well defined trading strategy that you have been using profitably, go back and recalculate your previous trades adjusting the size and costs as if they were made on margin. If you have a decent sample size then the real question is, does trading on margin, using your strategy, show enough extra profit to justify the added costs and risk?

If you aren’t sure of the additional cost from your broker, call them and have a rep go through a couple of your previous trades of various time frames as if you had used margin so you can be absolutely clear what the additional costs will be.

Never get involved financially in anything that you don’t completely understand!

[pig4bill]

[ QUOTE ]
I would guess no, because margin is -EV regardless of the time frame. I have no experience with trading on margin, however.

[/ QUOTE ]

LOL, pretty definitive answer from someone who's never done it.

If your return rate is higher than the interest rate you're being charged, it's going to make you money. Simple as that.

[Thremp]

pig,

Aren't there other constraints such as a margin call forcing you to pull out of a position you'd otherwise hold?

[gull]

[ QUOTE ]
[ QUOTE ]
I would guess no, because margin is -EV regardless of the time frame. I have no experience with trading on margin, however.

[/ QUOTE ]

LOL, pretty definitive answer from someone who's never done it.

If your return rate is higher than the interest rate you're being charged, it's going to make you money. Simple as that.

[/ QUOTE ]

Obviously. But guaranteeing a higher return than interest is difficult.

[DesertCat]

[ QUOTE ]
pig,

Aren't there other constraints such as a margin call forcing you to pull out of a position you'd otherwise hold?

[/ QUOTE ]

I was able to use margin to increase my exposure to Berkshire B shares a long while ago. When it dropped to $1400 I was close to a margin call and dumped all my shares to save what was left. It hit $2,500 within a year. It's $3,663 today.

Margin is a very dangerous tool. If you have significant volatility risk, it can force you into bad decisions. I clearly should have held my BRK.B shares, but the huge drop combined with the possibility of a margin call caused me to make a bad mistake.

If you want to use margin, you have to make sure that you don't use enough to risk a margin call. You also have to be sure your returns are higher than the margin rate.