Even if the stock market suffered some sharp drops, particularly in 2009, many investors are still interested in investing in stocks. However, there is not always enough equity available that could be used to buy shares or other securities. In this respect, some investors also make use of the opportunity to buy shares on credit. However, this type of fundraising is naturally associated with a not insignificant risk, so that the ” normal ” private investor is rather not advised to take out a loan only because the capital is then to be used to buy securities. Some online brokers and direct banks definitely offer so-called securities loans, which can be taken out specifically for the investment in securities.
How does such a security loan work and what conditions does it contain?
A securities loan, also known as a securities loan, is provided by the bank or broker exclusively for the purpose of buying securities. In terms of structure and structure, it is a very ordinary installment loan, which, in contrast to other installment and consumer loans, is earmarked. The borrower must therefore buy securities from the capital received and cannot use the money, for example, to buy a new car. Since investing in securities, especially shares, is always associated with an increased risk, it is customary in connection with the securities loan that the purchased securities are pledged to the lender.
Depending on the type of paper, a certain percentage can be lent to it. For example, Astro Finance shares are mostly lent to 60 percent, while smaller or foreign shares are often only lent to 40 percent or less. Buying shares on credit has both potential advantages and disadvantages for investors and borrowers. The advantage is always there if you could then make a profit with the shares you bought. In addition, the loan only gives you the opportunity to be able to invest at all if the equity is not sufficient.
The disadvantage of buying stocks on credit is that you go into debt to speculate on the price gains of stocks. Should there be price losses instead of price gains, you have debts in total and sometimes no equivalent. Furthermore, the price gains must of course first “ offset ” the loan interest that you have to pay for the securities loan. These range on average from seven to eight percent. Thus, the shares must achieve at least eight percent price gain per year so that you have at least the credit costs out. And with that, the investor still hasn’t made a real profit.