Bank loan for traders | Page 2 | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Take a Loan to Trade? 114 replies

Who has ever tried to get a bank loan for trading? 57 replies

FXCM CEO Drew Niv speaks on the company’s results, Leucadia loan 0 replies

Anyone here trading AUD/USD or USD/AUD tonight regarding AUS Home Loan Report? 1 reply

Bank loan for traders

  • #21
  • Nov 28, 2009 6:45am Nov 28, 2009 6:45am
Quoting bingfx
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...
When you borrow money from Bank, you gotta put in some collateral. Based on that bank you give you some liquid. When you use leverage on your broker account, your deposit acts as your collateral. From outside two seems different but in practice, its same.
  • #22
  • Nov 28, 2009 4:12pm Nov 28, 2009 4:12pm
Quoting im7i4z
When you borrow money from Bank, you gotta put in some collateral. Based on that bank you give you some liquid. When you use leverage on your broker account, your deposit acts as your collateral. From outside two seems different but in practice, its same.
thanks for the info.. :-)
  • #23
  • Nov 28, 2009 7:24pm Nov 28, 2009 7:24pm
Leverage is different than a loan when it comes to forex trading.

Spot forex is heavily related to currency futures. Futures contracts are contracts, not securities or tangible assets, thus you don't actually have to own the underlying in order to trade the contracts. Today's automated FX brokers can give your contracts full mark-to-market pricing, so there's no real need for a loan.

To get a bank loan you need credit. If you're a personal trader, that means your personal credit. If you're a professional trader with an established corporation, then that means the corporation's credit.

For securities leverage, it's a different story. Most of those "loans" are short term, and if done via the broker, secured by the margin and stock you're buying.
  • #24
  • Nov 29, 2009 5:56am Nov 29, 2009 5:56am
ok.. thanks.. Im a personal trader only.. no corporation. But maybe later i will apply for corporation. In my country its both pros and cons with corporations.
  • #25
  • Nov 29, 2009 6:02am Nov 29, 2009 6:02am
Quoting Rabid
Leverage is different than a loan when it comes to forex trading.

Spot forex is heavily related to currency futures. Futures contracts are contracts, not securities or tangible assets, thus you don't actually have to own the underlying in order to trade the contracts. Today's automated FX brokers can give your contracts full mark-to-market pricing, so there's no real need for a loan.

To get a bank loan you need credit. If you're a personal trader, that means your personal credit. If you're a professional trader with an established corporation,...
uhu, I wasn't talking about forward/options or futures. For spot FEM and equity market when you ignore the finance jargons leverage and loans have basically same functions.

Even when a corporation operates on "bank loan" often time the equity investors will consider the company to be run on "leverage."
  • #26
  • Nov 29, 2009 7:08am Nov 29, 2009 7:08am
Quote
uhu, I wasn't talking about forward/options or futures. For spot FEM and equity market when you ignore the finance jargons leverage and loans have basically same functions.
Right, but that's my point, spot forex isn't that different from futures. Unless you're trading on a platform that offers actual delivery of currency, or maybe directly with an ECN (that's questionable, however) the mark-to-market platform and margin requirements effectively eliminate the "loan" aspect. For the most part, we aren't even putting orders directly into the market.

The way it is, all you have to do is put up X margin for Y currency. A loan is where you take money, pass some form of underwriting, maybe offer some form of collateral, and have pre-agreed re-payment terms. In spot forex you are not receiving any money, you pass no underwriting, you offer a fixed % of collateral and there's no re-payment terms. There is nothing even close to a loan going on.

Quote
Even when a corporation operates on "bank loan" often time the equity investors will consider the company to be run on "leverage."
Yes, debt is a form of leverage, but not all leverage is a form of debt. There exists forms of leverage that are not debt.
  • #27
  • Nov 29, 2009 10:29am Nov 29, 2009 10:29am
Quoting bingfx
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...
If you could prove that you earned 10k consistently each month, after expenses, then the bank would allow you to owe a specific percentage of your yearly income. And your monthly payments (total of all payments owed, including the one being applied for) would have to be less than a certain percentage of your monthly income. The term for this is Debt to Income Ratio.
However, the hurdle will be convincing anyone that this income is consistent. The first step would be, as Rabid suggested, to form a corporation and pay yourself a fixed salary. Even then, you'd have to have a history of having been paid that salary for a certain amount of time.

If you can build an impressive credit score, then you should be able to get a small line of credit that will be gradually increased. Here in the States, it's still easy enough to get an auto/boat/RV loan, provided your credit is good. Since the finance company will have your purchase for collateral they are a little more willing to take the risk.

I'm assuming that you're concerned about your ability to finance anything if you make your living as a retail trader. The answer is yes. You are not doomed to a life of never being able to borrow. For store credit cards and luxury purchases with collateral involved (boat/motorcycle/etc.) you should be fine.

For mortgages, business loans etc, your burden of proof of income will be exceptionally high.
  • #28
  • Nov 29, 2009 1:30pm Nov 29, 2009 1:30pm
When I fund my account I don't think in money, for me is just a value, a number, I only trade with money i can afford to loose. I think a loan is a bad ideia... Just my two cents.
  • #29
  • Nov 29, 2009 5:41pm Nov 29, 2009 5:41pm
Quoting Cain
When I fund my account I don't think in money, for me is just a value, a number, I only trade with money i can afford to loose. I think a loan is a bad ideia... Just my two cents.
The OP isn't looking for money to trade with. He is concerned with wether or not a bank would consider his forex income as stable enough to repay other types of loans--car/boat/house/flat screen TV.
  • #30
  • Nov 30, 2009 10:03am Nov 30, 2009 10:03am
Quoting billflet
If you could prove that you earned 10k consistently each month, after expenses, then the bank would allow you to owe a specific percentage of your yearly income. And your monthly payments (total of all payments owed, including the one being applied for) would have to be less than a certain percentage of your monthly income. The term for this is Debt to Income Ratio.
However, the hurdle will be convincing anyone that this income is consistent....
OK.. This is a good solution.. coz now its like a dize..throw the dize and wait for you number of income.. Its mutch better i guess like you say and run a corporate and "pay-out sallary"
Then the bank will consider your corporate as main source of income.
  • #31
  • Nov 30, 2009 10:04am Nov 30, 2009 10:04am
Quoting Cain
When I fund my account I don't think in money, for me is just a value, a number, I only trade with money i can afford to loose. I think a loan is a bad ideia... Just my two cents.
Nope i dont loan money to trade forex. bad bad thing to do. :-)
  • #32
  • Dec 2, 2009 9:31am Dec 2, 2009 9:31am
The only way you could possibly do it is if you secured the loan with your home or car or some other real asset, and even then it's highly unlikely any bank would lend you money to trade currencies. Maybe if you had another source of income they'd do it.

And why would you even want to? Brokers will lend you money at good rates to trade with them. How much leverage can you possibly need?
  • #33
  • Dec 2, 2009 10:27am Dec 2, 2009 10:27am
Quoting Pearl Jam
The only way you could possibly do it is if you secured the loan with your home or car or some other real asset, and even then it's highly unlikely any bank would lend you money to trade currencies. Maybe if you had another source of income they'd do it.

And why would you even want to? Brokers will lend you money at good rates to trade with them. How much leverage can you possibly need?
Have you read any of the OP's posts in this thread? The OP isn't asking about borrowing money to trade with. See the post prior to yours.
  • #34
  • Dec 2, 2009 3:37pm Dec 2, 2009 3:37pm
I would never consider taking out a loan. Very risky indeed and not just that, the fear of making a loss. It is total under pressure stuff. Stay well away from it.

Your emotions will run high and will make you do bad thinking.

I am still studying forex. It is a tough old world. You have to realise, only a few make profit and not everyone does. Brokers know this and will take you to the cleaners.

Stocks are a safer option and are not so volatile unless there is major news.
Investor with City Of Investment
  • #35
  • Dec 12, 2009 3:39pm Dec 12, 2009 3:39pm
Quoting murci
Stocks are a safer option and are not so volatile unless there is major news.
Is that right?

I would be shocked if average stock volatility were LOWER than average forex volatility. Someone please post some numbers if this is really true.

I think what makes forex or futures trading potentially dangerous is the use of leverage... ...but the reality is, that leverage is always optional.

What I find totally amusing about this thread is, I'd bet there are a lot of traders who "would never take a loan to trade" and yet, think nothing of 20:1 or 100:1 leverage built into their contracts with retail brokers.
  • #36
  • Dec 12, 2009 3:51pm Dec 12, 2009 3:51pm
Quote
I would be shocked if average stock volatility were LOWER than average forex volatility. Someone please post some numbers if this is really true.

Stocks are way more volatile than forex. A sudden 30% swing in a stock is not all that rare. In forex, it happens much more gradually and because of a major change in monetary policy. During the recession we had stocks like citigroup going from $50 to under $4. That doesn't happen to major currencies.

The difference is, as you pointed out, leverage. Which means profile volatility (sharpe ratio) versus underlying volatility. The 2:1 leverage of stocks is nothing compared to 20:1 leverage (or 100:1, lol) in currencies. That's what makes the big difference.
  • #37
  • Dec 12, 2009 4:06pm Dec 12, 2009 4:06pm
Thanks for the sanity-check, Rabid.

I also find it amusing when someone chooses a retail broker because they offer 100:1 leverage.

Currently, I find myself having a hard time using more than 2:1 - maybe one day, I will go up to 5:1, but 100:1?!? There must be some damn good traders out there!!!
  • #38
  • Dec 12, 2009 5:21pm Dec 12, 2009 5:21pm
Quoting kfmfe04
Is that right?

I think what makes forex or futures trading potentially dangerous is the use of leverage... ...but the reality is, that leverage is always optional.

What I find totally amusing about this thread is, I'd bet there are a lot of traders who "would never take a loan to trade" and yet, think nothing of 20:1 or 100:1 leverage built into their contracts with retail brokers.

That is a good dose of reality for people to swallow. Everyone who trades with any sort of leverage, is trading LOAN MONEY. It does not matter if it's a credit card, bank loan, hard money loan, loan from your neighbor, or leverage allowed by your broker. All of these are forms of leveraging OPM (other peoples money). The process of getting the money doesn't change the fact that the money, is not your money. It must be repaid in some fashion, and with some fee (e.g. interest rate).

The difference in trading money loaned directly by the bank to the individual is that a trader has the added responsibility of managing the risk that is now separate (repayment of loan plus interest). You are just using a higher leverage, and adding some more moving parts.

I do however, think that a bank loan could be leveraged wisely. For instance let's say you are comfortable trading, and are profitable. Maybe you have $100k to your name.
- You would like to open a $50k trading account based on your money and risk management rules.
- You do not want to put half of your own capital into a trading account.

I would say in a situation like this, I would be comfortable taking a $50k simple interest loan (with an interest rate that makes sense). Trading the account until the loan must be repaid in full, or until you have enough profit so that you can repay the loan and be comfortable putting $50k of your own capital into an account.

I would not recommend it for everyone however, it can be a good way to keep your capital in reserve for whatever you may need it for. Also, in this situation you have enough reserve to repay the loan should things go horribly wrong.

Just two more cents for your pocket.
  • #39
  • Dec 13, 2009 6:59am Dec 13, 2009 6:59am
Banks rather expect regular income. If it is variable as in case of trading you will not get it.
  • #40
  • Dec 13, 2009 1:10pm Dec 13, 2009 1:10pm
You will get a bank loan but you may have to goto a not so well known lender who will charge a higher rate of interest.

Just do an internet search and you will find hundreds.

However, they will probably consider forex trading as a type of gambling.
0 traders viewing now