If you're at least a GOLD member of eToro, you have the possibility of having a credit line. I took my first ever credit line from eToro two weeks ago. Here's how it works: 1. You can take a maximum of half your portfolio with a minimum of $1 500 and a maximum of $60 000. 2. It reaches its maturity in 6 months 3. The interest rate per annum is between 0.76% to 2.40% depending on how much you took.
The credit line I took is about 20% of my portfolio and the reason why I took is to add some more liquidity to my portfolio and make other people's money work for me. All great entrepreneurs from Donald Trump to Warren Buffett have took loans to advance their business. This is called leverage. This should not be confused with leverage trading(margin trading) which is also a sort of loan but with very high interest. For example, let's say a stock costs $100 but you want to buy two shares, so you can invest with a X2 leverage and you'll have two shares. The problem with that is that you need to pay a daily fee(if you extrapolate it for a year, it is about 8%) and also if in case the trade goes in the wrong direction a stop loss can be triggered and you can lose a lot of money. Higher leverages are even riskier. A X10 leverage on eToro is in other words a debt with 125% interest rate per annum. I don't use these types of leverages. They never worked for me. But now if you know how to use them, it is up to you and I understand that it can be very useful if you're day trading.
I am a fundamental analyst and I don't know much about looking at charts to trade and I'm also not interested to learn this. However, I know how to analyze companies and find their intrinsic and fair values. I know how to look at economic conditions and forecast the performance of these companies over the short and long-term. I understand behavioral economics and market psychology which helps me trade with a high degree of certainty and that's what I intend to do with that credit line I took.
Since, I have to return it after 6 months, I don't want to open any trades with it which will last longer than that. Therefore, I'm using it mostly for arbitrage trades and other short-term trades. By arbitrage trades, I mean merger arbitrage. For example, right now I'm buying $CELG which has a stock price of $98/share. The company will be acquired by $BMY for $102.43/share. This deal will happen in less than 6 months, so in the meantime, I can make a profit on that. Other examples can be $DATA being acquired by $CRM, $RHT being acquired by $IBM and $APC being acquired by $OXY . By short-term trades, I mean let's say there is a company which I believe is expensive for a long-term investment but it can still grow in the future. So, I may invest in it. For example, $AMT and $CCI are expensive but because of 5G, they will be growing, so I'll invest in them. $DGE.L is a little expensive but because of Brexit, it will most probably keep growing, $LMT is expensive but geopolitical situations can keep the stock growing. A few weeks ago, $FB was down by more than 5% in a day, there was a lot of volatility, I knew that I could invest and close a position with a 1% gain in about a day because people would be buying the dip. I made 1% in a few hours. It all depends on certainty. If you look at $BTC for example, it grew by more than 10% yesterday and today by about 2%. I can't figure out any certainty in it(if you can, good for you), so I won't be investing my money or other people's money. I have been offered a credit line since 2017 but I was not ready to take it. It is a big responsibility, so if you're going to take one, only do so once you have a clear strategy on how you're going to use it.
My target with that credit line is to have a net profit(after interest is paid) of 35%(82% per annum). This will bring an additional 8% gain to my portfolio(17% per annum). I know that it is not going to be easy but investing was not supposed to be easy, otherwise, everybody would be billionaires. In the first two weeks, I've made a net profit of 1.58% on that credit line. I'll keep you updated as I progress.
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