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International Traders – Alternative sources of funds for Investing in Stocks
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As an investor, it may be a big challenge to get funds from traditional lenders such as banks to acquire stocks. The banks will be afraid the stocks you buy with their money could decline in value. And, this will make it difficult for you to repay the loan. Another obstacle could be the interest rates the loan will attract. The rates may be high, making the debt expense and the returns low.
How to source funds to invest in stocks
There are alternative sources of funds for investment in stocks and shares.
The stock brokerage industry is permitted to enable investors to acquire stocks and use the same as security for the debt. This is in line with the laws of the Security and Exchange Commission.
Under this arrangement, a broker can advance you a loan to acquire stocks. These loans are available to investors with a margin account, which is easy to open. All that is need is to approach a reliable and reputable broker and open the account.
Once you have the account, you can buy and sell stocks. The broker can offer you a cash advance. It occurs where the price of the shares you wish to acquire is higher than your available funds. So the cash advance is to cover the difference between the stock price and your funds.
Equity and borrowing limits
Under the arrangement, you have to cover a part of the price of the shares. The debt meets the difference. So under the rules, you are only permitted to borrow a maximum of 50% of the price of the shares. In other words, you are required to cover half of the stock price. The advance meets the other half.
Your equity in the account is the funds you have injected into it. For opening a margin account, you must have at least $2,000. It means you can buy stocks valued at $4,000.
Once you get a cash advance to acquire shares, you have a margin debt. In this case, you must maintain minimum equity of 25%. Also, keep in mind that if the value of your shares falls, your equity decreases.
Settling Margin loans
When you maintain your equity over the 25% threshold, you will not be required to pay or settle the cash advance. If the value of your shares appreciates, or where you inject more funds into the account, you can acquire additional stock. Besides, you can get a further cash advance.
The interest on the cash advance charged by the broker is debited to the account. You can pay off the amount when you want using the funds in the account. Funds flow into the account in the form of deposits, stock dividends, and sells of stocks.
Acquiring a loan against your home equity
Many savers are attracted to properties because they are familiar, tangible and quite easy to understand and manage. It is also possible to take out a loan against the equity of your property. It is among the popular ways to secure a loan. Moreover, you use the funds to purchase stock. Many American investors use this plan.
Problems occur when there is a change of circumstances, for example, where property value declines, or stocks fall. When property values are high and interest rates low, you can deploy the strategy to create and build wealth. You can take out a loan against your home and invest the proceeds in high quality stocks. Moreover, a carefully designed portfolio of shares can provide exceptional capital and income growth.
Line of credit
If you want to take out a loan against your home equity to invest, then you should set up a line of credit. By doing this, you will maintain the loan as distinct from the main home debt. The line of credit you set up will depend on your investment strategy.
Short selling stocks
If you estimate that the price of the stocks will decline, you can dispose of your shares. By so doing, you borrow from the investment house. The problem with this strategy is that if the price of the stocks increases, you may suffer higher losses.
You can create and build wealth by buying stocks in high quality American and international companies. A carefully designed portfolio of stocks can deliver exceptional capital and income growth.
As an investor, it may be a big challenge to get funds from traditional lenders such as banks to acquire stocks. The good news is that there are alternative sources of funds for investment in stocks and shares.
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