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In terms of your stock brokerage offering, comparing you to Interactive Brokers. IB offer a stock lending option for people who hold stocks with them. This can enhance yields to complement dividends. I think you should consider this. IB also offer loans or margin accounts at less than 0.89% per year for USD loans. The closes product you have is CFD where leveraged is charged at approx 3.5%. I think if you can keep margin requirements low then it could be a very good offering.

 

I would like to see more services like IB have with IG.

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This is very interesting. It raises two points that IG should consider:

 

1. They already allow you to use up to 90% of your full brokerage portfolio value as deposit for CFD or SB trading. It therefore follows that they should also allow stock brokerage only leverage. The model is established with the deposit levels set in the CFD section. Most US brokerages offer 2:1 or even 4:1 leverage on normal stocks trading, as CFD/SB doesn't exist there.

 

2. All 'daily funded bets' in SB/CFD are funded in sterling, and the sterling rate of interest is charged. It should also be possible to loan in USD, although I appreciate the base rate is only 0.25% apart (and maybe nothing after this week).

 

I have to say that I find IB's rate for a 12 month USD loan of 0.89% pretty amazing, as 12 month USD LIBOR is 0.855%

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Yes I agree the rates are really great. The funding rates are blended on a tier level. I don't know how they do it, but its the best I have seen in the market. their sterling rates start as high as 1.98% and go lower the more you borrow.

 

IG allow you to use 90% as collateral, but that can only be used for the margin requirement, you need to cover any running losses with additional cash. So if your position makes a loss for the first couple of months then you will need cash to cover that loss, and I consider that cash a dead funds, ie. I can't generate an income from them.

 

So if I had £100,000 I can invest 20% (£20,000) in shares of which 90% can can be used as collateral, those shares are now earning me a dividend and I can make money on the SB/CFD as well, so my assets are making money on two fronts. I then have £80,000 in cash that is not being made to work for me, on top of that I pay 3.5% in leverage costs. Now imaging if I have borrowed that orginal £100,000 at 4%, I need to maximise the income from that £100,000, in order to just pay the interest costs and walk away with a profit.

 

With Interactive Brokers, I spend the £100,000 on stocks (all of which earns a dividend income), then they lend me another £50,000 on very low funding rates, which bring down my overall cost of capital I then buy more stocks, which I earn me some more dividends. On top of that they lend out orginal stocks (£100,000) and I earn an additional income from that. This all enables me to pay all interest payments and make a significant profit, over the years the dividends grow and the share price grows.

 

I have been with IG since 2003 and I have seen a lot of changes over that time, but one thing that has been consistent is the innovation. I think the collateral service is a very good idea and I will be using at some point in the future for my long term trading. I do belive however that IG could improve the offering in order to make my assets sweat a lot more amd truly maximise my earning capacity.    

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They need to allow ISA funds to be used as collateral.

 

I know they may not want it to be seen as using savings for spread betting/CFDs, but its all exactly the same thing. A stock portfolio isn't tax wrapped, an ISA is. There isn't any difference in risk.

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  • 4 years later...
On 18/09/2015 at 12:02, tk20 said:

They need to allow ISA funds to be used as collateral.

 

I know they may not want it to be seen as using savings for spread betting/CFDs, but its all exactly the same thing. A stock portfolio isn't tax wrapped, an ISA is. There isn't any difference in risk.

Is there any progress on this?     ISAs as collateral would be superb.

Can't believe there's much work to do behind the scenes - it's just a wrapper.

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