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Borrowing - a dumb idea for a novice trader?

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bumclouds

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30 March 2009
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Hey guys,

I started trading about 3 months ago. I have been reading these forums, and I read a book which is suggested often on here - Adaptive Analaysis by Nick Radge.

I've only done two trades so far, each over one month - I made 35% on Starpharma (SPL), and I made 38.8% on Avexa (AVX).


However I'm an undergrad university student and the amount which I invest is trivial, and so the returns I get are trivial . Lunch money at best.

Is borrowing a daft idea?

Much Love
Andrew
 
bumclouds said:
However I'm an undergrad university student and the amount which I invest is trivial, and so the returns I get are trivial . Lunch money at best.

Is borrowing a daft idea?
Click to expand...

Utterly daft.

Let's turn it around a little.

"I'm an undergrad student, 3 months into my course. I'm going to borrow money to invest in my chosen profession even though I'm a student and have almost no cash flow. So far I've completed two trial jobs in my profession and they both went well, so I now want to risk money I don't have on something I'm not very experienced at."
 


well said....
 
Is borrowing a daft idea?
Click to expand...

From a guy called Bumclouds--Found that funny!

Michael that was very good.
 
bumcloud...are you a 'bungy jumper' ....its all about the risk....the reward is a few fleeting seconds....
metric has sound advice for you
 
Profitable trading is two things


Boring

and

Slow


Cheers
Brad
 
hi andrew,

Personally i think borrowing is a good thing when the conditions are correct, i.e. you have a secure well paying job, you're building a long term blue chip portfolio over a period of time, your house is paid off if you're that way inclined,ect.ect.

You certainly don't want to worry about a loan when starting off short term trading, especially since statistically new traders tend to blow up accounts.
 
tech/a said:
Can be.
Can also be Fast and furious.
ask T/H.
Click to expand...

Yep. My most profitable trading this year has been "edge of the chair" split second stuff.

I like boring and slow in bull markets.

And for the opening post, the worst thing that can happen to a newbie is for your first trades to be profitable. You'll think it's easier than it is, and you won't appreciate risk until you've been burnt.
 

In my opinion it depends who you are borrowing from. If its interest free from your parents and under 5,000 then i dont think it would be too much of a problem.

You just need to make sure your first two trades were not just lucky, you need to identify why you entered the trade, if you were proved correct in your assumptions and why the trade was successful. You also have to be prepared to lose the money you owe your parents and they need to be aware that they may not get it back for some time.

I started buying long term stocks when I was quiet young, after i had built my portfolio up as much as possible with my own savings I borrowed money from my parents so i could diversify my portfolio and take larger positions. At the time the amount was relatively small (5K) and after school and on the weekend I worked hard (casual jobs) and made about 350 p.w. so the loan was manageable.
 

Did you do any analysis before making the decision to buy/sell those specific stocks or was it out of blind luck?? perhaps it would be wise if you made a few more trades and waited a while until your certain you can trade profitable in the long term...

I've only started trading recently as well about 6 months ago, but ive made ~30 trades (all profitable except 1) and im not even confident enough to consider margin lending yet...

BTW: how much are you investing?? and how much do you pay in brokerage??
 
MS+Tradesim said:
And for the opening post, the worst thing that can happen to a newbie is for your first trades to be profitable. You'll think it's easier than it is, and you won't appreciate risk until you've been burnt.
Click to expand...

I agree with this. Having a tough run to start with will test your resolve, and motivate you to improve your methods. It will also give you a dose of reality and will help you deal with volatility in the long run.
 
Hey guys,

Thanks for all the replies.

Just to give you a little bit more of an insight into my financial position I'll tell you more about myself:

I have $3k saved up, and my part time job typically pays between $250-$300 p/w (after tax). I'm at home with my parents. I dont have any living expenses, except that I like to spend about 10-15 dollars a day on food while I'm at uni, lol (I hate packed lunch).

I think I would like to borrow about $5k from my parents - just like investorpaul mentioned in this topic.

The problem I have at the moment is that if I put $1000 into a stock, that means that I'm investing 33% of my savings! If I have $8k, I could place $800 dollars on each stock perhaps, and be investing a fraction of 10%. If my portfolio value kept declining, I could keep investing that same percentage (10%), although the brokerage might eventually kill me, no?

Anyway, my parents are very relaxed about lending money to me, and they said they don't mind the prospect of losing some or all of the money they lend to me. Of course, I'll try my very best not to.

BTW: how much are you investing?? and how much do you pay in brokerage??
Click to expand...

Around $1k per stock. I'm with commsec, but I'm switching over to belldirect becuase its so much cheaper!
 
bumclouds said:
I'm with commsec, but I'm switching over to belldirect becuase its so much cheaper!
Click to expand...

Disclaimer: I think learning to trade/invest with borrowed money is a big mistake but if you're going to anyway then......


.......have a think about borrowing the Aussie equivalent of US$10,000 from them to open an account with Interactive Brokers (IB), and then give them back X to leave you with AUD$5000. You need US10,000 to open the account but you don't have to leave that much in there. With IB you will only pay the greater of $6 or 0.08% per side when buying/selling shares. And you won't get charged extra for setting stop losses/contingent orders.
 

Hi BC,

When I first started buying stocks (mainly medium to long term holdings) I did two purchases at $500 each. I quickly realised i needed a pretty big movement just to cover brokerage, at the time it didnt matter much as I was just buying and holding. I then bumped up my minimum investment to $1000 (only 1 transaction), again I discovered this really didnt cut it and bumped it up again to $2,500. The above amount were all for long term positions, you or others may feel a different amount is better suited for short term trading.

How do you currently identify your trades? do you use technical analysis (charting) or another method?

Also if you are trading you should probably work out a time frame for the trade to work. You dont want to buy something at say $1 and see it hover at that price for ages as your capital could be used better elsewhere.
 
^ I'm reading a book on technical analysis at the moment, and it looks very appealing. However at the time that I chose these stocks, I had no good stratergy. I simply just collected recommendations from people, and then did my homework on each of those stocks. And then I just bought the ones that looked most undervalued to me.

That is a bit embaressing to say.
 


hey m8 .beats using a dartboard .well done on your wins , leave the loans be for now and buy a pen and paper to use instead

haveagooday
 


Eek, but does that mean I have to deal with AUD/USD fluctuations in addition to stock market fluctuations? I don't fancy myself as a currency trader!
 
bumclouds said:
Eek, but does that mean I have to deal with AUD/USD fluctuations in addition to stock market fluctuations? I don't fancy myself as a currency trader!
Click to expand...

Nope. You open an AUD denominated account and as long as you're only trading Aussie instruments there are no currency exchanges involved. But to open the account you need the AUD equivalent of US10k...whatever that is at the time you transfer in your inital funds. As an example you might need $13,000 to open the account but then you give 8k back to your parents if they're grubstaking you with 5.
 

You dont need to be embarrassed.

Everyone starts somewhere and everyone learns lessons along the way. There will be some who "knock you" for your lack of strategy, but its only because they want to help and give you a chance at success.

No doubt you have been lucky with the market moving up 20%+ from its bottoms over the last 8 or so weeks.

I would recommend that you keep reading those books and more and try and apply what you learn to charts. You should at a minimum understand the basics like trends, support, resistance etc.

You can download a free charting package from incredible charts, just google it and it will pop up.

Also go to www.asx.com.au and under the education tab there is some further reading there which will help.

Finally dont worry if people tell you not to bother or that you dont have enough money for shares, because everyone starts somewhere and you have plenty of time ahead to invest/trade/learn
 
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