1G·

Question for the brave among you who buy shares on credit

$XEON (+0,01%)
$XEOD (+0,03%) What interest rates are you currently paying on loans that you use to buy shares?

This question occurred to me yesterday when I used the recovery to sell some positions. As usual, I parked the freed-up cash directly in the XEON.

Why did I link this thought to the XEON?

In day trading, I always short stocks, but only on an intraday basis. By shorting the XEON, I could theoretically "borrow" money very flexibly at currently around 2% p.a. and invest it specifically in weak phases in the event of market distortions. As the XEON is currently rising at a stable rate of around 2% per year, this value basically corresponds to my "financing costs".

Fees? For smaller amounts, the borrow fee and interest on sales proceeds almost balance each other out, so that essentially only the spread costs remain. At the same time, the whole thing would be extremely flexible, as the XEON can be traded at any time.

As long as I have enough cash available, this is not relevant for me! It was more of a theoretical thought experiment.

I then also checked this with IBKR: The XEON is actually short-sellable there, currently with a holding of approx. 1.6 million shares.

Sounds like a kind of hack to get "credit cash" flexibly and cheaply at any time, provided you have a broker like IBKR with a margin account. Or have I made a mistake somewhere 😵‍💫

Have any of you ever taken the same approach and shorted STR overnight?

@GoDividend Alternative to your building society project?

14 Commenti

Frank@schlimmschlimm

I've gambled enough in my life. Don't buy anything on credit anymore, not at my age ;-) Of course, you have to evaluate that differently in this case, it can be sensible debt, of course...but I still stick to my rule. It sleeps really well at night....;-)

•

TomTurboInvest@TomTurboInvest

@schlimmschlimm I'm with you, I don't do that either, but it occurred to me and it would be a very flexible way to get cash cheaply.

•

Frank@schlimmschlimm

@TomTurboInvest I already know what you mean. :-) I agree with you there too. But it's no longer my move ;-)

•

Christoph@ChrisBizz

Interesting, but I don't understand it at the moment. Why can you "borrow" money by shorting the XEON? 🤔

•

TomTurboInvest@TomTurboInvest

@ChrisBizz If I short a share as a real "short sale", then I have a corresponding negative position in my borrower, but the cash in my account, the equivalent of the negative position.
I can use this cash to buy other shares until I close the negative position again and buy the shares back.
Please note: this is about actual short selling, not about shorting using derivatives.

PS: Since the STR Overnight, such as the XEON, rises in line with the ECB interest rate, I don't really see why else you should short it? Unless it was a negative interest rate phase.

Maybe that is exactly the use case and therefore the available short position. The longer I think about it, the more I don't know why I would sell the STR short overnight, because it's more or less a given that I'll buy it back at a higher price, at +2% p.a.🙄

•

Wealth-Accelerator@Wealth-Accelerator

I haven't quite figured out the mechanics yet, but I think I understand...
Do you think you can reduce your own liquidity a little, knowing that you could finance short-term needs at roughly 2% cost?
How long can you maintain such a construct?
So I could let my ETF run at 110% for 1 year if I put my savings plan into paying off the short?

•

TomTurboInvest@TomTurboInvest

@Wealth-Accelerator It's not actually complicated, you just trade in reverse order to your normal trades, where you buy first and sell later.

When selling short, you sell the shares first, with the result that you have a negative position in your portfolio (-100 shares of e.g. XEON), but you receive the equivalent value in cash on your clearing account (as with any other sale).

At a later point in time, you have to make up for the negative position, as you owe your broker 100 shares by buying the shares again (+100 shares of e.g. XEON). This means you have to pay cash as with any other purchase.

Now the special feature of XEON, e.g. with a holding period of one year, you know that at the current ECB interest rate you have to pay +2% more than you received. This means that you have bought cash for one year, which ultimately costs you +2%.

There are no time limits for short selling, but with normal "shorting" of shares a so-called margin call can occur if, for example, a share rises so much that the broker is worried that you will no longer be able to buy the shares back. Then you have to add cash or sell other shares. However, with a fixed increase of e.g. 2%, as with the XEON, this will not happen.

Depending on the value of your portfolio, you will receive a margin from the broker.

For example, instead of saving €1000 each month in an ETF, you could sell €12,000 of XEON, buy an ETF immediately with this €12,000, and then instead of putting €1000 into the ETF each month, buy back the XEON for €1000 each month, which would then cost you 1% per year on a straight-line basis. This is a good thing when the markets are rising, as the ETF then makes more than 1%. However, there is always the risk of how the market will behave. This is a general issue why you should only buy shares with "borrowed" money if you are aware of the risk. But if you want to do that, then the vehicle with XEON short would be a very favorable and above all flexible solution.

PS: With "normal" shorting, you bet on falling prices, e.g. I sell 100 Irish shares for $40, receive $4,000 in my account and ideally buy back the 100 shares 2 days later for $30, i.e. I only have to spend $3,000 of the original $4,000 I received to balance the portfolio and have therefore made a profit of $1,000. But with the risk that if Iren, for example, instead of falling to 30$, rises to 100$, I have to spend 10,000$ to buy the shares back, i.e. with a 4000$ stake I end up with a 6000$ loss. Shorting is therefore very risky, as the loss is not limited by the stake, so shorting is only possible with an SL.

•

Wealth-Accelerator@Wealth-Accelerator

@TomTurboInvest
Mega explanation, thanks!
I didn't ask to gamble with it. But it broadens my horizon of possibilities 🙏

•

TomTurboInvest@TomTurboInvest

@Wealth-Accelerator I don't intend to use it either, but it seems to me to be a cheap and above all flexible option, provided I don't make a mistake in my thinking 🧐
But I already "short sell", but not for "financing", but as a normal day trade on falling prices😁

•

Wealth-Accelerator@Wealth-Accelerator

@TomTurboInvest Yes, this train of thought could lead to me lowering my cash by a few percentage points. But I'll have to think about that in peace.

•

Vincent@Vikentios

10H

I don't quite understand the pictures as I don't speak german and I am not an IBKR user ( yet). But what is the interest rate you will be paying ( daily or monthly) for borrowing xeon shares? I know that the easy borrowing shares can have a very low borrowing interest rate like 1% annual. Is this the case for xeon? And what's the actual interest rate for the margin at ibkr right now for eur 3 and something? Thanks.

•

TomTurboInvest@TomTurboInvest

@Vikentios So far, I have only sold relatively liquid shares where the borrowing fee was covered by the interest.
Two factors determine the daily costs of short selling: the borrow fee (which you pay) and the short sale proceeds interest (interest you receive on the cash proceeds from the sale). For liquid ETFs like XEON, the proceeds interest can often fully or partially offset the borrow fee, therefore this idea came into my mind.

••

Vincent@Vikentios

@TomTurboInvest man, do it!!! And came back here to report!!! I am really interested!! At some point when I will have enough capital I will move everything to ibkr, there are no competitors so far when you start doing serious stuff.

•

TomTurboInvest@TomTurboInvest

@Vikentios If you trade more actively, then I can highly recommend IKBR! I use it for day trading and swing trading, focusing on US stocks.

••