QUOTE(aurora97 @ Feb 17 2009, 05:20 PM)
like i said earlier, 5% interest per annum... basically the interest is so low the bank is putting money in investors pockets to invest in the market... furthermore (the assumption is) the market can easily give u returns more than 10% provided ur a skillful invstor.
nevertheless the outcome is uncertain yes, we may say margin facility is the devil etc... but it could potential enable him to profit 100 fold compared to an investor whom relies on his own pool of cash and Vice versa.
5% interest is already a lot.
If someone wants to make a substantial profit (can be loss), at least have to borrow a large sum of money, say $500,000 . (To have this facility, you need at least $160,000 of your own asset as collateral)
500,000 x 5% /annum = $25,000/year.
If bear market like this carry on for months or years, servicing the interest alone can erode whatever dividends received and his own capital.
On top of that, as mentioned earlier is the capital top-up, if necessary.
Even if someone's risk appetite is lower, $50,000 x 5%/annum = $$2,500/year
Still, interest only is $208/month
Most of the time, bank is winner and clients are losers.
My opinion is margin play will do better when market is bullish.
This post has been edited by sharesa: Feb 17 2009, 07:35 PM