Why would you buy on credit? (micro caps & stop losses)

canny said:

tech/a - you're good at TA of course, and looking for the 'next microcap to run' - could you cast your eye over MKY and see what you think of it?
To me, it looks like we're about to see a breakout on TA.

I like the chart - and like the new management - but don't consider myself technically expert.

Now if I could see 'runners in the making' -(and I usually miss those 10 baggers, I must admit!!) I'd be quite happy to go into debt ot grab some for a trade.

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markrmau said:

I notice a lot of threads talking about margin loans and credit facilities....

I have a suggestion: don't buy on credit and get a free GSL

Here is the rationale:

You use credit facilities (margin loan, LOC, drawdown on house loan...) to buy large caps which have relatively low volatility.....for the sole purpose of increasing the relative volatility.

However, microcaps already have an equivalently high volatility (equivalent to larger comapny, + margin gain).

However, with a micro cap, you will never go negative - at worst you loose the lot. So it is a guaranteed stop loss in a way. Admittedly, I am talking here of the dangers of an 87 style crash. With margin or LOC, you could possibly loose your shirt. With microcaps and no leverage, you can fight another day.

In addition, there are greater chances of price anomalies in the microcap stock universe...

I just wanted to throw this in for discussion of alternative strategies. Obviously tech trader is an example of the advantages of margin on the majors.

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wayneL said:

But be aware there will come a time when these microcaps become very choppy and/ or deathly quiet *when* everybody loses interest in them. Has happened before and will happen again.

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tech/a said:

Its not one I would be trading.
I'm not licienced to give advice but this is my technical opinion for interest sake..

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