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Bank loan for traders

  • #1
  • First Post: Nov 25, 2009 4:35pm Nov 25, 2009 4:35pm
Have you tried to get a bank loan?
forex trading equals impulsive income, and that might be a issue.
The bank want document of income (steady) You can show them what you earned for a period back in time, but you never know what u will earn the next period...

Its interesting if someone have done that.
  • #2
  • Nov 25, 2009 11:53pm Nov 25, 2009 11:53pm
hmm.. I think it would be risky to take a loan to trade. I personally feel that you should only trade money that you have and can afford to lose.

Ishykiel
  • #3
  • Nov 26, 2009 12:35am Nov 26, 2009 12:35am
Quoting bingfx
Have you tried to get a bank loan?
forex trading equals impulsive income, and that might be a issue.
The bank want document of income (steady) You can show them what you earned for a period back in time, but you never know what u will earn the next period...

Its interesting if someone have done that.
I'm pretty sure if someone tried that, they are now living in a card board box.
  • #4
  • Nov 26, 2009 12:54am Nov 26, 2009 12:54am
Quoting thesnacker
I'm pretty sure if someone tried that, they are now living in a card board box.
I agree, the only way i see someone doing something like this is by taking out a second mortgage on their home then using the money to trade.

The problem with this though is that you now are up against interest rates as well as the pressure to make money on scared money.

End result you blow it all and lose your house!
  • #5
  • Nov 26, 2009 12:56am Nov 26, 2009 12:56am
Quoting bingfx
Have you tried to get a bank loan?
forex trading equals impulsive income, and that might be a issue.
The bank want document of income (steady) You can show them what you earned for a period back in time, but you never know what u will earn the next period...

Its interesting if someone have done that.
Are you talking about borrowing money to trade? Or are you asking about using forex income to prove your ability to repay a loan for something else? For instance, you want to take out a mortgage but you're worried that the bank won't recognize your forex trading as reliable income.
  • #6
  • Nov 26, 2009 1:10am Nov 26, 2009 1:10am
my dad left work to trade full time.... he already had money available that the bank was willing to lend him..... as years of steady financial security enabled him to have the bank on his side. All he has to do is pay monthly interest rates on the amount he borrowed which can mean more pressure to make money on the markets as you have to pay the interest off to get to breakeven for the month.

He has borrowed quite alot . a 6 figure sum and is doing quite well from trading.
He only trades stocks and not forex.
and by the way he has no idea how to trade either , he just goes by news and has no idea about technical analysis lol.

crazy stuff.

It depends on what type of trader you are. For me personally I wouldnt take out a loan, purely from the fact that I only trade daily charts at the moment and havnt had a trade all this month lol. So it would just be dead interest..

Perhaps It could be ok if you know what your doing and have fantastic trade management techniques and trade a few times a month.

I can see how it is tempting though. It takes years to build up a big account, this can just fast track that providing you have proved to yourself you can be profitable on a consistent basis.
  • #7
  • Nov 26, 2009 2:36am Nov 26, 2009 2:36am
I have been thinking a lot about this since I have very little of my own money(I am in college right now)

I don't think its a bad idea as long you have a plan, set limits, and have had consistent success before on a small acct. Then its just another business decisions and it could pay off. The key word is "have had consistent success before".

Lets say you borrow 50,000.

Don't trade the whole thing at once. Begin with 10,000 and make a goal of getting x% and when you get it add some more and repeat the same process until you feel comfortable trading the whole acct. If you are a half decent trader the interest is so small compared to your profits it wont be an issue.

Most successful traders already know their max draw down, or the point where they stop trading because the system/trader is done. Lets say its -20%.

If ever you reach -20% you stop trading and pay off the loan. Assuming you had a few good months before this, the acct should be around the number it started. Their is absolutely no reason to blow the whole acct.

Another option is to gradually decrease your position size as you start losing and increase as you start winning. That way you will never wipe out the whole acct and can pay off the loan if something is not working.

This is not yet realistic for me because I have to prove myself on a small acct. If you skip this step its guaranteed failure.

By doing it this way you give yourself every opportunity to get proven wrong and if you never are, a loan can be very beneficial head start in your trading.
  • #8
  • Nov 26, 2009 3:36am Nov 26, 2009 3:36am
what about getting new credit card - does that count? I got a new card with $2000 limit and traded and lost that once..
  • #9
  • Nov 26, 2009 7:10am Nov 26, 2009 7:10am
Quoting CrudeCraig
I agree, the only way i see someone doing something like this is by taking out a second mortgage on their home then using the money to trade.

The problem with this though is that you now are up against interest rates as well as the pressure to make money on scared money.

End result you blow it all and lose your house!

Hit the nail on the head.
I'd never ever do that.

"Succesful Trader looking for Start Up Capital"

Read this senctence what do you think?
  • #10
  • Nov 26, 2009 12:43pm Nov 26, 2009 12:43pm
Im talking about when you already are a established trader and want to buy a house,car boat...anything...

is it hard to get a bank loan? (when trading is youre only income)
  • #11
  • Nov 26, 2009 10:22pm Nov 26, 2009 10:22pm
Quoting bingfx
Im talking about when you already are a established trader and want to buy a house,car boat...anything...

is it hard to get a bank loan? (when trading is youre only income)
That's what I thought you were asking about. First of all you'll be classified as self-employed. For a while, here in the states, the banks were a little friendlier to self-employed people. Now they've returned to the earlier, more conservative days. Now, you will have to prove your income by way of tax returns. And the bank likes to see consistency over the 2 years. If you apply mid year or later, you'll probably be required to provide your current year's P and L statement. And to sign a form authorizing the bank access to your tax returns. In other words, you can't file one tax return with the IRS and submit a more appealing one to the bank. They may cross-reference it. Bank deposits won't do it either--just tax returns.

I've been self-employed for 30+ years and had to deal with banks in all sorts of ways. The last time, they wanted proof of business ownership for the past 5 years. A few years ago I could borrow any amount within reason, just on a signature. Now I have to grovel even though nothing in my financial record has changed.

If my self-employed income came entirely from trading I suspect it would be even tougher.

The banks are hungry for qualified borrowers right now. "Qualified", meaning super credit scores, verifiable income for 2+ years, and little current debt. Even if you're not needing a loan right now, call up a bank and explain your situation. They'll let you know in short order wether or not you have a chance. Then you'll know what you'll be up against when you do need a loan.

Car loans are a little easier. You can find finance companies on line that specialize in auto loans and will give you an exceptional interest rate based entirely on your credit score and stated income, provided the loan is proportionate to the value of the car.

Edit: I just noticed you're from Norway so much of my post won't apply.
  • #12
  • Nov 27, 2009 3:24am Nov 27, 2009 3:24am
Do a business plan inlcuding 12 months of detailed statements, go to banks/investors and do a 50/50 profit split. That way they take all the risks.

I know someone who has done it here in the UK and wasnt asked to cover any loses with secured loan etc.

Given the current climit you find it difficult but not impossible.

Scoobs.

PS. You may even find brokers will sponsor you if they think your method is credible long term.
  • #13
  • Nov 27, 2009 9:25am Nov 27, 2009 9:25am
Quoting scooby-doo
Do a business plan inlcuding 12 months of detailed statements, go to banks/investors and do a 50/50 profit split. That way they take all the risks.

I know someone who has done it here in the UK and wasnt asked to cover any loses with secured loan etc.

Given the current climit you find it difficult but not impossible.

Scoobs.

PS. You may even find brokers will sponsor you if they think your method is credible long term.
He's not trying to borrow money to trade. He wants to know how hard it is for a trader to get a loan for other things. In other words, will a bank consider trading income to be reliable enough to repay a loan for house/car/boat/ etc.
  • #14
  • Nov 27, 2009 9:43am Nov 27, 2009 9:43am
Quoting billflet
He's not trying to borrow money to trade. He wants to know how hard it is for a trader to get a loan for other things. In other words, will a bank consider trading income to be reliable enough to repay a loan for house/car/boat/ etc.
From a reputable bank = no chance
  • #15
  • Nov 27, 2009 9:57am Nov 27, 2009 9:57am
Ugh.

It's all in how you structure the cash flow.

If you're making money as a trader then you have to file taxes. And yes, those tax statements can be proof of income. But some lenders will want to see a monthly income, and this could hurt you there.

If you're worried about that, why not incorporate your trading business and hire yourself as the head trader? Pay yourself a standard salary, work out what compensation you can afford and get a good accountant to reduce your taxes. At that point you're both a trader and an employee.
  • #16
  • Nov 27, 2009 10:51am Nov 27, 2009 10:51am
Quoting Rabid

If you're worried about that, why not incorporate your trading business and hire yourself as the head trader? Pay yourself a standard salary, work out what compensation you can afford and get a good accountant to reduce your taxes. At that point you're both a trader and an employee.
Good advice. Banks love paper trails--the more the better. The sooner you paint a picture of being a legitimate business, the better off you'll be in the future. Loan underwriters have no image of you other than what they see on your loan app and its supporting documents. If your accounting method is simply: "I pay the bills and expenses and keep what's left over," your application won't be taken seriously.
  • #17
  • Nov 27, 2009 4:07pm Nov 27, 2009 4:07pm
Quoting billflet
That's what I thought you were asking about....
thanks, no im not from states, but i think all the bank around the globe want a sort of security...so i guess it cleard up for me..
  • #18
  • Nov 27, 2009 4:11pm Nov 27, 2009 4:11pm
very good answers, so maybe the best option is so save up cash... will take time.. hehhe..
  • #19
  • Nov 27, 2009 4:14pm Nov 27, 2009 4:14pm
There is a industry standard term that defines borrowing money for speculative/trading activities: Its called LEVERAGE!

When you borrowing from bank, you are just using leverage regardless you borrow it from bank or your broker.
  • #20
  • Edited Nov 28, 2009 4:01am Nov 27, 2009 4:22pm | Edited Nov 28, 2009 4:01am
Quoting im7i4z
There is a industry standard term that defines borrowing money for speculative/trading activities: Its called LEVERAGE!

When you borrowing from bank, you are just using leverage regardless you borrow it from bank or your broker.
Hi, how can you borrow from bank? lets use an example;
USD 10k pr month x 12 months a year = 120k yearly income (this is only numbers-no real deal)
What can i expect from that calculation? with leverage..

edit: I realized that that was a fixed income calculation, so thats not going to work...
bytheway - i know stock traders who have loans...
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