If you buy shares with the help of a loan and are wrong, you lose twice.
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Dangerous game: buying securities on credit is risky.
Illustration: Christina Baeriswyl
I always try my luck on the stock market, usually I only invest a few thousand francs. Swissquote offers that you can take out a loan at zero interest and thus invest more. Is it worth it? Readers question from SO
I am sceptical. Not only Swissquote, but also other banks offer their customers stock exchange transactions on credit. Specifically, you take out a Lombard loan from the bank and can then use this money to buy securities in addition to your savings. “You can make investments or take advantage of market opportunities without having to sell capital investments,” is how the major bank UBS, for example, also advertises such loans. These transactions are attractive for banks because they only take low risks and generate additional interest income. Because your securities that you with the
Bank already in the custody account serve the bank as security for the financing.
A Lombard loan is a loan against pledging of assets and has the advantage that it can be used to make capital available quickly. One thus procures liquid funds, which in turn can be invested in the financial markets without actually owning these funds. If you “try your luck on the stock market” again, as you put it in your question, and use a Lombard loan for this, you are in fact buying securities on credit. This is attractive as long as you are right with your securities purchases and generate profits. You can make quick money with outside capital – but only if everything goes well.
If the securities bet does not work out and you are wrong with your assessment, you suddenly find yourself sitting on book losses and also on a loan. You usually pay interest on a Lombard loan. In the case of Swissquote, the Lombard loan is actually offered at zero percent until the end of January, provided that the loan has been applied for by the end of November. You can then go to the casino for three months without interest. For Swissquote it still works, because firstly, because of the record-low capital market interest rates, money doesn’t cost anything anyway, and secondly, the advertised campaign generates more trading turnover on its own online trading platform, which means that Swissquote cashes in.
If fog comes in, making it difficult to see, don’t increase your risks.
I find it problematic that Swissquote is promoting the zero-interest Lombard loan in its in-house customer magazine without even hinting at the associated risks. UBS makes it clear in its advertising that the leverage effect of a Lombard loan not only results in higher profit opportunities but also higher risks of loss and that unforeseeable market changes can lead to a negative leverage effect: “If the value of the collateral falls below a certain limit, UBS can provide additional collateral or request repayment of part or all of the loan. ” If the funds are then lacking for the interest payments due or the repayment of the loan, this can lead to the sale of the pledged assets at an inopportune time. Currency and interest rate fluctuations can also have a major impact on the expected return and the value of the investment.
From my point of view, everyone should do what they want, but they should understand the risks they are taking with their money. In my opinion, you should never buy stocks or other securities on credit and only speculate with your own money. Then if you lose it is painful too, but not a problem because you have only lost your own money. If you lose someone else’s money, you have to pay it back. You have to inject new money and, depending on the constellation, sell your existing securities – possibly at a point in time when prices have collapsed.
The stock market is always difficult to predict. The current corona crisis and the numerous uncertainties due to the persistent second wave that has Europe and the USA under control are making market assessments even more difficult. There are always market opportunities for investors. But when fog comes up, which makes it difficult to see, as Corona is currently doing on the stock exchanges, you shouldn’t increase your risks, but rather take off the gas a little.