Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Margin account buy dividend stocks

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
Gan020
Lemon Slice
Posts: 461
Joined: March 3rd, 2019, 12:25 pm
Has thanked: 178 times
Been thanked: 246 times

Re: Margin account buy dividend stocks

#259679

Postby Gan020 » October 23rd, 2019, 3:41 pm

Snorvey wrote:You've just reminded me I set up a dummy HYP on a well known spreadbetting platform back in February this year.

They 'gave' me £10,000 which I spit evenly between 16 companies a form of buy and forget basic HYP criteria. Except I can't remember why I used 16 and not 15.

......And I ballsed it up on the first 'purchase' and bought a position many, many times larger than I intended. By the time I noticed, worked out what was wrong and closed it I was £600 down.

Anyway, the portfolio is currently down by £591 as we speak - so broadly level I guess. 8 winners and 8 losers on the board. Biggest winner = Standard Life Aberdeen...biggest loser = Imperial Brands.

Daily interest seems to be running at around £4.30.


Annual interest is £4.30*365= £1,570 a year or 15.7% on £10,000.

Which is challenge with this strategy. If you are running a safeish portfolio making 4% a year, you need to get the interest rate down to 2% to make money. (And I'm not even sure that works if you are a basic or higher rate tax payer as once you've filled the dividend allowance there's tax to pay and there's the matter of how to off-set the interest payments)

Cookie
2 Lemon pips
Posts: 120
Joined: January 27th, 2018, 10:19 pm
Has thanked: 63 times
Been thanked: 6 times

Re: Margin account buy dividend stocks

#259700

Postby Cookie » October 23rd, 2019, 5:25 pm

Gan020 wrote:
Snorvey wrote:You've just reminded me I set up a dummy HYP on a well known spreadbetting platform back in February this year.

They 'gave' me £10,000 which I spit evenly between 16 companies a form of buy and forget basic HYP criteria. Except I can't remember why I used 16 and not 15.

......And I ballsed it up on the first 'purchase' and bought a position many, many times larger than I intended. By the time I noticed, worked out what was wrong and closed it I was £600 down.

Anyway, the portfolio is currently down by £591 as we speak - so broadly level I guess. 8 winners and 8 losers on the board. Biggest winner = Standard Life Aberdeen...biggest loser = Imperial Brands.

Daily interest seems to be running at around £4.30.


Annual interest is £4.30*365= £1,570 a year or 15.7% on £10,000.

Which is challenge with this strategy. If you are running a safeish portfolio making 4% a year, you need to get the interest rate down to 2% to make money. (And I'm not even sure that works if you are a basic or higher rate tax payer as once you've filled the dividend allowance there's tax to pay and there's the matter of how to off-set the interest payments)


Not possible for all, but dividends are tax free if received by a UK company ie an investment company. However there are still the costs of running that company, although if your investing funds from a trading company then you would pay these costs anyway, but then you get into ER relief discussion territory....

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Margin account buy dividend stocks

#259711

Postby hiriskpaul » October 23rd, 2019, 6:25 pm

Dividends from spread bets (aka dividend adjustments) are tax free, as are capital gains.

£4.30 per day does seem very high for 10k exposure. Are you sure you're exposure is what you think it is? Easy to get this wrong ;)

IG charge LIBOR + 2.5% for daily funded bets, about 3.3%, so the daily interest on 10k should be under £1.

GoSeigen
Lemon Quarter
Posts: 4350
Joined: November 8th, 2016, 11:14 pm
Has thanked: 1590 times
Been thanked: 1579 times

Re: Margin account buy dividend stocks

#259771

Postby GoSeigen » October 24th, 2019, 6:46 am

Snorvey wrote:I'm quite sure it's correct. The 'dummy ' starting capital is £10k and the daily interest bounces around the £4.30 Mark and has done since it started.


Your exposure is not £10k, as hiriskpaul alluded.

It is maybe 10 times this much, if your margin requirement is 10%. Thus you might hold positions in £100,000 worth of stock. IOW £100k is how much you'd stand to lose with real money if your shares got wiped out and you kept meeting your margin calls.

Based on £100k exposure, £4-30 per day works out at roughly 1.6%pa borrowing cost which is base-rate + 0.75%. You should check what the actual leverage is: it could be higher or lower (more likely) than my guess of 10x.


GS

moorfield
Lemon Quarter
Posts: 3523
Joined: November 7th, 2016, 1:56 pm
Has thanked: 1546 times
Been thanked: 1402 times

Re: Margin account buy dividend stocks

#259991

Postby moorfield » October 24th, 2019, 9:32 pm

GoSeigen wrote:
Snorvey wrote:I'm quite sure it's correct. The 'dummy ' starting capital is £10k and the daily interest bounces around the £4.30 Mark and has done since it started.


Your exposure is not £10k, as hiriskpaul alluded.

It is maybe 10 times this much, if your margin requirement is 10%. Thus you might hold positions in £100,000 worth of stock. IOW £100k is how much you'd stand to lose with real money if your shares got wiped out and you kept meeting your margin calls.




Yes, there are three different numbers imo you should know.

(i) exposure = (long) bet size * market price
(ii) margin required = 20% * exposure (IG's rate on most FTSE100 shares)
(iii) net equity = cash +/- profit/loss

You margin level is net equity/margin required - if this drops below 100% it is squeaky bum time, your positions may get closed and you lose all your cash. Keep it well above that.

Your gearing is exposure/equity (ratio definitions differ, this is the one I use). For comparison a house buyer with 10% deposit is 10x geared. Keep it well below that.

These numbers are in constant flux so you should monitor them and be willing to add cash to your account if you want to keep losing positions open. Of course in good times you will be able to open new positions using surplus equity or just extract cash. As others have commented, the dividend credits should take care of your interest costs, but LHYP ( :twisted: ) isn't really an income strategy - you make (or lose) your money on share price movements - when an underlying share's yield drops below that of FTSE100 is perhaps a prudent exit point (assuming you "bought" it at a much higher yield/lower price).

moorfield
Lemon Quarter
Posts: 3523
Joined: November 7th, 2016, 1:56 pm
Has thanked: 1546 times
Been thanked: 1402 times

Re: Margin account buy dividend stocks

#268291

Postby moorfield » November 30th, 2019, 4:26 pm

Snorvey wrote:I've just logged on to my dummy HYP spreadbetting account and found that only 3 of the 16 positions remain open.

I have no idea why and there are no obvious clues. It does appear to have made decent 'money' however.

Ach well.

I think I'll just still to normal share accounts.


My guess would be you were using too much leverage and not enough cash on deposit to meet your margin requirements.

FWIW My fledgling LHYP (currently TUI, HSBA, VOD, IMB and being added to monthly) has made a cautious start since the summer. My account xirr is currently +1.4% and the numbers I mentioned in the post above are currently 225% (margin level), 2.2x (gearing) and 55% ("ltv"), which are comfortable enough to absorb a 25% drop in share prices across the board. IMB has been the big loser on price, but I was paid its dividend credit (and tax free of course) last week.

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Margin account buy dividend stocks

#272351

Postby hiriskpaul » December 19th, 2019, 3:45 pm

Snorvey wrote:....and the shares are back again.


And we're currently £1500 up plus the £600 lost after the initial LlOYDS screw up.

For those that can work out this sort of thing, I thought I had set up the 16 share HYP 'ungeared' (but I could be wrong).

If it's any help:

Select balances
£8,578.52 Funds
£1,552.18 Profit/Loss
£10,074.25 Margin
£61.41 Available
£10,135.66 Equity
99.39% Equity Used


The long interest charged is around £4.20 per day.

That pretty much confirms it. Retail accounts now have a 10% minimum margin, so you have £100,742.50 exposure. If you get lucky over a prolonged period you could do really well. More likely you will get stopped out of quite a few positions at some point.

moorfield
Lemon Quarter
Posts: 3523
Joined: November 7th, 2016, 1:56 pm
Has thanked: 1546 times
Been thanked: 1402 times

Re: Margin account buy dividend stocks

#272355

Postby moorfield » December 19th, 2019, 4:10 pm

hiriskpaul wrote:
Snorvey wrote:....and the shares are back again.


And we're currently £1500 up plus the £600 lost after the initial LlOYDS screw up.

For those that can work out this sort of thing, I thought I had set up the 16 share HYP 'ungeared' (but I could be wrong).

If it's any help:

Select balances
£8,578.52 Funds
£1,552.18 Profit/Loss
£10,074.25 Margin
£61.41 Available
£10,135.66 Equity
99.39% Equity Used


The long interest charged is around £4.20 per day.

That pretty much confirms it. Retail accounts now have a 10% minimum margin, so you have £100,742.50 exposure. If you get lucky over a prolonged period you could do really well. More likely you will get stopped out of quite a few positions at some point.



My bold - no, 20% now I think – certainly at IG on FTSE100 shares.

Which would make total exposure £50,371.25. Interest is charged at Libor + 2.5% = 3.2 ish% today on that exposure so near enough £4.20 per day.

Net Equity is £8,878.52 + £1,552.18 = £10,430.70.

So your overall Margin Level is 10,430.70 / 10,074.25 = 103% - your positions will probably start getting closed out automatically when that drops below 80%.

And your overall Gearing is 50,371.25 / 10,430.70 = 4.8 x


IMO Snorvey that’s not sustainable at all for running a LTBH leveraged portfolio. :shock:
Last edited by moorfield on December 19th, 2019, 4:21 pm, edited 1 time in total.

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Margin account buy dividend stocks

#272357

Postby hiriskpaul » December 19th, 2019, 4:11 pm

You would definitely have been charged that interest if it was your own money. Quarterly rolling bets work out cheaper than daily bets for LTBH. With these, there is no daily interest. Instead the interest is reflected in the price you pay, which starts at a premium to spot price. The premium then reduces as you get closer to expiry.

You could reduce your gearing, but it would be mildly amusing to see what happens if you don't.

Definitely don't do this with real money ;)

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Margin account buy dividend stocks

#272361

Postby hiriskpaul » December 19th, 2019, 4:25 pm

moorfield wrote:
hiriskpaul wrote:
Snorvey wrote:....and the shares are back again.


And we're currently £1500 up plus the £600 lost after the initial LlOYDS screw up.

For those that can work out this sort of thing, I thought I had set up the 16 share HYP 'ungeared' (but I could be wrong).

If it's any help:

Select balances
£8,578.52 Funds
£1,552.18 Profit/Loss
£10,074.25 Margin
£61.41 Available
£10,135.66 Equity
99.39% Equity Used


The long interest charged is around £4.20 per day.

That pretty much confirms it. Retail accounts now have a 10% minimum margin, so you have £100,742.50 exposure. If you get lucky over a prolonged period you could do really well. More likely you will get stopped out of quite a few positions at some point.



My bold - no, 20% now I think – certainly at IG on FTSE100 shares.

Which would make total exposure £50,371.25. Interest is charged at Libor + 2.5% = 3.2 ish% today on that exposure so near enough £4.20 per day.

Net Equity is £8,878.52 + £1,552.18 = £10,430.70.

So your overall Margin Level is 10,430.70 / 10,074.25 = 103% - your positions will probably start getting closed out automatically when that drops below 80%.

And your overall Gearing is 50,371.25 / 10,430.70 = 4.8 x


IMO Snorvey that’s not sustainable at all for running a long term leveraged portfolio. :shock:

Ok 20%. I think legally the minimum is 10%. I have a professional account which requires 4.5% on BT shares for positions up to 4000, equivalent to 400,000 shares, or about £800k. For indices the initial margin requirement is even smaller, eg S&P 500 is 0.45% up to 500, equivalent to about $1.6m. The next tier is 0.9% up to 5000, about $16m. Insane leverage available and totally understandable why the FCA clamped down.

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Margin account buy dividend stocks

#272363

Postby hiriskpaul » December 19th, 2019, 4:30 pm

Snorvey wrote:Thanks for the comments chaps.

I have no idea how I set it up like that.

You could reduce your gearing, but it would be mildly amusing to see what happens if you don't.

I'm just going to let it run for as long as IG let me. As you say, it'll be fun.

Definitely don't do this with real money

Definitely not. I farted around with an S/B account once. Never again.

You are actually in profit by £135, which is not bad under the circumstances!

moorfield
Lemon Quarter
Posts: 3523
Joined: November 7th, 2016, 1:56 pm
Has thanked: 1546 times
Been thanked: 1402 times

Re: Margin account buy dividend stocks

#272364

Postby moorfield » December 19th, 2019, 4:35 pm

hiriskpaul wrote:Ok 20%. I think legally the minimum is 10%. I have a professional account which requires 4.5% on BT shares for positions up to 4000, equivalent to 400,000 shares, or about £800k. For indices the initial margin requirement is even smaller, eg S&P 500 is 0.45% up to 500, equivalent to about $1.6m. The next tier is 0.9% up to 5000, about $16m. Insane leverage available and totally understandable why the FCA clamped down.


Out of interest, what's your take on "safe" (ie. I can take my eye off the ball for couple weeks unless the markets make the BBC headlines) margin level and gearing numbers for a LTBH dividend harvesting exercise ?

I would think at least 200% and at most 2.5x geared.

hiriskpaul
Lemon Quarter
Posts: 3852
Joined: November 4th, 2016, 1:04 pm
Has thanked: 682 times
Been thanked: 1489 times

Re: Margin account buy dividend stocks

#272367

Postby hiriskpaul » December 19th, 2019, 4:48 pm

moorfield wrote:
hiriskpaul wrote:Ok 20%. I think legally the minimum is 10%. I have a professional account which requires 4.5% on BT shares for positions up to 4000, equivalent to 400,000 shares, or about £800k. For indices the initial margin requirement is even smaller, eg S&P 500 is 0.45% up to 500, equivalent to about $1.6m. The next tier is 0.9% up to 5000, about $16m. Insane leverage available and totally understandable why the FCA clamped down.


Out of interest, what's your take on "safe" (ie. I can take my eye off the ball for couple weeks unless the markets make the BBC headlines) margin level and gearing numbers for a LTBH dividend harvesting exercise ?

I would think at least 200% and at most 2.5x geared.

Provided you were sufficiently diversified, you could probably go a bit higher. Market falls of 25% over 3 weeks are actually quite rare.

I tend to go well over the top with variation margin though if I am abroad and have open option positions. In itself excess margin is risky as you are only covered up to FSCS limits and of course you get no interest on margin while it is sitting at IG.


Return to “Investment Strategies”

Who is online

Users browsing this forum: No registered users and 8 guests