The rates have dropped since the recent reduction in the federal funds rate. It is the cheapest margin you will get in Australia.
Note that Australians specifically are still limited to $50,000 because the government thinks it is unsafe to invest in the stock market. They would prefer people lose their life savings in crypto or romance scams, or leverage like crazy to get millions of dollars in loans to buy investment properties here.
Referrer gets $200. Referee gets $1 worth of IKBR share (capped at $1,000) for every $100 deposited.
Nope.
Really? how come
Well it's not like they are giving you the money with no collateral. It should be zero* risk to ibkr. If you invest in shares that drop in value dramatically, they will liquidate your collateral to protect themselves. So there's no way for them to be out of pocket*.
@watwatwat: She can help hand out pamphlets for ibkr. No referral commission required.
(Look man, I just need to keep her busy and get her off my back. Whatever it takes.)
@WhyAmICommenting: Thank you. It took me a while but I got it in the end. .mil is also a military domain extension. :D
@watwatwat: I assume you * refers to if there’s a catastrophic crash, and your entire portfolio drops below the loan value… in which case you lost everything you started with and more.
I assume you * refers to if there’s a catastrophic crash, and your entire portfolio drops below the loan value
Realistically speaking, such an event is so rare it's barely even worth thinking about. There was a huge drop in the market during the beginning of covid and I think everything operated gracefully. The moment your leverage ratio drops too far, then IBKR would automatically liquidate your positions incrementally.
But as we see in this thread, many people don't know how margin works. You can avoid this risk altogether by having a conservative ratio.
For example, you could have an account with $1 million dollars of stock ownership, with $50k of that being margin (so if you sold everything, you would have $950,000). If the entire stock market then had a drastic drop of 50% overnight, then your stocks would be worth $500,000, and if you sold everything then you would have $450,000. There is no margin call and nothing happens at all.
Now as a totally separate scenario let's say there is another customer who creates an account and deposits $10,000 of cash and then buys $60,000 worth of stock. So with $60,000 of stock, if the market dropped 50%, then the value of the stock would be $30,000, which is a drop of $30,000. But the customer only deposited $10,000 so how could they lose $30,000? Well typically they wouldn't. Before that could occur, and as the stock dropped, IBKR would automatically sell off the $60k. So all the user would see is the $10,000 net account value progressively going down to $0, unless they went in and sold earlier.
The asterisk is for very unique circumstances. I think some people would say a crazy black swan market event, but I think it could be more frequent with bugs in trading software when people are performing exotic trades.
Or in this case, purposely trying to exploit a bug in software:
https://old.reddit.com/r/wallstreetbets/comments/17nmfau/inf…
https://www.vice.com/en/article/a-robinhood-exploit-let-redd…
@watwatwat: You’ve explained if well - the key point is to have a conservative LVR, and the importance for people to get educated.
I had a not-so-conservative LVR pre-GFC. When GFC hit I only had enough cashflow to pay down the loan (rather than balancing by buying more stock).
Through the GFC the ASX lost 55% value over 15 months. Getting margin calls and selling at a loss through that period is pretty scary… (which i avoided).
I was relying on a financial advisor… and didn’t educate myself.
Do they take into account other loans like credit cards, mortgage, etc. when determining how much you can have?
No.
Note that Australians specifically are still limited to $50,000 because the government thinks it is unsafe to invest in the stock market.
Where does it say that?
But where is this part of your comment "because the government thinks it is unsafe to invest in the stock market."
I don't think the 50K limit has anything to do with the government.
I don't think the 50K limit has anything to do with the government.
You can think whatever you want. In other countries, they do not have limits like this.
Technically you can surpass the $50k limit if you meet the government's definition of a "sophisticated investor" and have $2.5mil in assets or your income is >$250k: https://www.ato.gov.au/businesses-and-organisations/income-d…
@watwatwat: You could maybe ask some of the oh so clever investors who were diving into this stuff around 2007.
@watwatwat: There are many other restrictions only for Australians. So much for "freedom" in Australia
@watwatwat: Well my margin loan is much bigger than 50k, should i be expecting the government to come knocking?
@gromit: There is no industry-wide standard for this. So you have no problem.
The ibkr limit seems self imposed to reduce risk of breaking Australian regulations.
If you google it, you can see them being fined by asic for other things. But they operate in a huge quantity of countries (~200) and it is challenging to keep to date with each country'sregulations with minimal staffing.
And for anyone that uses commsec international instead, guess what company actually holds the shares in the background? https://www.commsec.com.au/support/help-centre/international…
There is no industry-wide standard for this. So you have no problem
The ibkr limit seems self imposed
Wait so first it was 'tHe GoVeRnMeNt', now it's not?
and it is challenging to keep to date with each country'sregulations with minimal staffing.
What an odd comment. Complying with regulations you operate under is a requirement for every single business in the universe. Flipping burgers is also challenging with minimal staffing…
@watwatwat: just a few posts ago you were telling us this was a government imposed thing, now it is a self regulated thing? Sophisticated investor is listed for complex investment types, last I saw Margin Loan was not one of them listed by the government. And yes other countries have limits on these things as well, including the US which limits the leverage and interestingly it is a lot harsher limit than here. Not only do the US have strict share leverage regulations they also impose limits on Currency Trading leverages and precious metals.
You can think whatever you want. In other countries, they do not have limits like this.
Of course they do. Financial regulations are a thing in every developed country in the world.
telling us this was a government imposed
I never said government imposed this specific limit.
Clearly local regulations and governance in a particular country can influence a product offering.
I never said government imposed this specific limit.
You: "Note that Australians specifically are still limited to $50,000 because the government thinks it is unsafe to invest in the stock market"
What is reading…
I never said government imposed this specific limit.
then perhaps you need to reread your post. you most definitely did claim it was the government doing this.
What is reading…
Nothing I said is incorrect so far.
As both of you don't submit deals to this website and just like to complain in the comments, I will be blocking both of you. Farewell sweet princes.
@watwatwat: I think the issue here is you portrayed that the Australian Government has a view that for individual investors, its unsafe for them to invest in the stock market.
I challenge you to substantiate that. Its un-necessary posturing which simply isn't true. There may be regulatory limits, but that doesn't mean the stock market is unsafe.
@watwatwat: Thanks for your permission to think what I want.
No need to scare other people by stating you will block them when they have highlighted that you have made non factual assertions about government regulation.
Come on tough prince(s)! Harden up!
I'm sure I can get a margin loan from one of the big 4 for way more than $50K like @gromit has suggested.
My assumption is that IBKR doesn't want to deal with small time investors that lose money and then make complaints. Their target market is premium clients because it takes good effort to find a telephone number to call for Australian "Individual clients" on their website.
ctrl + F for "50,000".
Maybe you should do this yourself?
"subject to change in IBKR Australia’s sole discretion… we lend different amounts for different products under our risk-based model"
Nowhere in your link does this say it's a government imposed limit.
Maybe you should do this yourself?
I am aware they can change it at their discretion and they have changed it in the past.
I spend 50c to get 5$ here on Ozbargain, I like my financial freedom
some warnings:
trading on margin is only for experienced investors with high risk tolerance. You may lose more than your initial investment. For additional information about rates on margin loans, please see Margin Loan Rates. Security futures involve a high degree of risk and are not suitable for all investors. The amount you may lose may be greater than your initial investment.
Reading sentences like that makes my skin crawl. I wonder why things like this exist, other than 7 deadly sins
Ppl are driven by greed and have short term memories. Overestimate their abilities and underestimate the risk. Only get found out when things go wrong. When the tide goes out…
I wonder why things like this exist
You talking about the ability to borrow to buy assets? I completely agree.
I completely agree with all said about the danger of borrowing money let alone margin tading, losing money on this myself in the past. But freedom is better than no freedom. this deal might a great option if you know what you are doing.
I wish property investors think about their risk tolerance when they buy investment properties too. Especially negative gearing is on the table now.
It is cheaper but I don't see the bargain when market beta has a historical real return of ~ 6% before taxes.
I don't see
That is because you don't know what you're talking about.
harsh but fair lol
Crypto is like Stocks for dumb people.
Sure, you can either trade and win from dumb people in crypto.
Or trade and lose from smart people in stock.
Choice is fairly clear.
How exactly is one "smart" in the Crypto trade? It just seems like greater fool theory.
Ah, that old chestnut
Ive recently increased my MATIC/POL, ADA & ETH DCA's, among some newer smaller caps like SUI & SEI.
Can we use the $50K on a short position on @ericm11
will tag u in 5 months and see who has last laughs.
You can tag @rektrading at the same time.
Any reviews from ozb-ers?
Yes, IB is top notch. I have margin, and pay 5% interest rate as I have the negative balance in EUR rather than AUD.
The Trader Workstation platform is advanced though, it's not as simple a user interface as say CommSec.
Make sense for people who can generate more than 6.856% returns on their stock market investments. Show of hands who has done that ? 🤚
Well since the interest is tax deductible it is comparing it to gross gains.
Asx200 YTD - 10.13%
ASX200 last 10y - 7.85%
ASX200 last 30y - 9.2%
Statistically its a pretty good bet but past performance is not an indication of future returns.
Not financial advice
SPY is at double what it was five years ago, plus dividends, so quite a few people I’d say?
The interest is tax deductible (just like negative gearing in IP). So on the highest 45% tax bracket the interest rate is 0.55 * 6.856 = 3,77%.
Everyone who bought anything in the last 5 years, pretty much…
It's been insane free money.
"Note that Australians specifically are still limited to $50,000 because the government thinks it is unsafe to invest in the stock market. They would prefer people lose their life savings in crypto or romance scams, or leverage like crazy to get millions of dollars in loans to buy investment properties here."
Umm, if you leverage in the stock market you take on a lot more risk than just using your own money. Add on top of that options and you can lose more than you put in.
Also, you're presenting a false choice: Lose all your money here, or over there. There are other options you know. Show me where the Australian government advocates for people losing money on romance scams. I'm waiting.
if you leverage in the stock market
Lose all your money here, or over there
I could have $100,000 of assets and borrow $1 of margin and buy some low risk government bond. This is still "leverage".
Add on top of that options and you can lose more than you put in.
Hahaha! Go and try then. Go and try and rip off IBKR by putting in an amount and then taking your account in to negative. You won't be able to.
Umm, if you leverage in the stock market you take on a lot more risk than just using your own money
Leverage isn't binary, you will only take on as much additional risk as you want to.
Add on top of that options and you can lose more than you put in
No, unless you are selling them. Otherwise you can only ever lose 100% when buying options.
Show me where the Australian government advocates for people losing money on romance scams.
Not sure what a "romance scam" is but the government sure does love to encourage people to buy houses.
What about leveraging for over priced and crappy (sorry to say) real estate.
The value of your investment property isn't going to tank overnight because some fund in Japan got a margin call…
Who said so? A lot of real estate is owned real estate investment companies.Besides if you are very confident about real estate prices you can buy real estate companies like reits and companies which are selling at a discount to their real estate anywhere in the world sitting on your computer and the best part is you won't get the discount if you buy the real estate. If real estate was the best investment warren Buffett and bill gates will have bought real estate
@onegpt: I'm not sure what you are doubting
Do Japanese retirement funds own investment property in Australia?
In USA, the credit is four times of what you deposited into the account, but in Australia, the credit is only a fixed amount, like AUD40,000 even if you have over $100,000 in the account. And for CFD, the margin is 20x while the rest of the world is 200x. What a nanny state Australia is.
Serious learn. how is this margin works compare to CFD ?
Is this free money? Take out a loan at 6.856% interest rate, buy VDHG, returns from VDHG pay off the loan (and then some), deduct the loan interest paid at tax time… profit?
Yes, that is what I do but with IVV instead of VDHG.
Plus I am not allowed to mention this on ozbargain but if you do a certain something to get a bonus something in your account, then this sweetens the deal.
Or keep riding them unrealized gains and claim tax deductions on interest.
Yep. This.
How long have you been doing this? Do you also need to have an ABN or anything to claim the deductions or can you as a sole trader?
You don't need either. It's a personal tax deduction.
@TheFreaK: I've had margin active for a few years. The limit used to be $25k but got doubled ~1.5 years ago.
Or keep riding them unrealized gains and claim tax deductions on interest.
Well assumes that the market continues rising at the rate it has been
History suggests if you can ride out the bumps you’ll be fine
Except with a margin loan, you may not get the opportunity to ride out the bump.
I'm not saying it's not a good option, but calling it free money is a bit of a stretch
@blighst: How does it work with IB and margin calls? Do you have to have the money in your account with them? Or can you just link a bank account to it which can be used in of a margin call?
@Loki556: People who are asking these questions shouldn't be taking up these products. Do your research.
@mrtin: As opposed to you, who was born knowing everything, never asked question's, and never benefited from online resources.
This is a social media site. If you dont know how to be social, try saying less.
GHHF get better rates than this plus no margin calls
Oh wow, I didn’t know that existed. I wanted to borrow exactly for dhhf.
Can you explain what you mean by better rates? Is the interest on the leveraging “built in” to the unit price?
Access to wholesale rates vs the retail ones if you did it directly
Leverage and interest costs are both built into the product
Yes but if you buy it using all your own money you can’t deduct the interest.
The dividends are used to pay the interest costs in GHHF, so it works out the same as getting a dividend that pays $1 and having to pay $1 in interest…
Better to take this margin to GHHF? gear on gear
Best reply to this post. In other words, the margin loan at IBKR (and all other margin loan providers) is both expensive and poorly featured.
My concern is that you wouldn't want a leveraged ETF long term, right? At some point in life you may want to reduce leverage and via this ETF, i imagine it would increase/ being forward capital gain realisation.
Agreed. But my suspicion is that the cheaper interest in ghhf outweighs acceleration of CGT.
I get what you are saying but few thing to note here,
1. Stocks get less riskier when holding for longer term (ref - https://rationalreminder.ca/podcast/259 )
2. Its more to pay more CGT if you have higher gains. Well because you have more money after CGT cos you have HIGHER gains (why you invest in first place).
3. You can sell it off over 5 or 10 years (reverse DCA) after you reach preservation age.
Challenge here is - there is very little theoretical research in Aussie environment of Superannuation+Franking+FIRE and other thing is GHHF is one of the most diversified ETF we have on ASX with very moderate leverage. Would you want to hold it for long term? - Absolutely! ETF like this should have better outcome if you DCA over long period (7+ years).
Personally I would be very surprise if GHHF doesnt outperform Aussie housing market or NASDAQ or ASX after 10+ years.
Considering younger set of population like myself will be priced out of housing market in next few years, GHHF would be one of the best bets!
Open a IBKR Pro account and get cheaper rates. I pay just over 5% with the negative balance in EUR. A full 1% lower than my home loan rate.
Do they do credit check?