Securities lending is governed by Regulation T of the Federal Reserve Board and only brokers are geared to engage in it, so it's doubtful that a bank will knowingly lend you money to trade stocks. However, there are various opportunities and gray areas that you can explore.
Cash-Out Mortgages and Home Equity Loans
Banks routinely offer cash-out refinancing and second mortgages to tap into your home equity. Most loan agreements state that you can use the money for any legitimate reason, and stock trading is certainly not illegal. Banks have no control over how you spend the borrowed money once they advance it to you. If your loan agreement doesn't specifically ban buying stocks with the proceeds, you're OK depositing the loan money into a brokerage account for investing/trading. Beware of the risk: If you lose money in stocks, you still owe it to the bank; if you don't have the money to pay it back, you could lose the house.
Credit Card Cash Advances
Credit cards often offer cash-advance checks that you can deposit into a brokerage account. Credit card credit is unsecured but very expensive and, again, if you lose money in stocks, you still owe it to the credit card company. If you can't repay the debt, you may damage your credit history or end up in bankruptcy.
Specialized lenders may offer loans secured by stock portfolios on more favorable terms than broker margin loans. They prefer to extend credit to executives who have large positions in their company stocks, but you can at least try to negotiate with them to see if you can borrow money to buy stocks.
Brokers typically lend 50 percent of the value of stocks. This means that if you have $10,000 in a brokerage account, you can either buy $10,000 worth of stocks and then pull out $5,000 in cash, or buy $20,000 worth of stocks. Suppose you take a $2,000 credit card cash advance, deposit it into a brokerage account, buy $4,000 worth of stocks, and they double to $8,000. After you pay back the $2,000 plus interest, fees and commissions, you're still left with about $5,000 that you've made out of thin air. The flip side is that if the stocks you buy move against you, you could just as easily be ruined financially.
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