the broker allows you to withdraw all but 10-50% of the value of your investments in a margin loan even without a box spread; they just charge exorbitant interest rates since they’re financing the loan themselves.
To clarify, the difference between this and the box spread loan is:
With the box spread, your brokerage account gets deposited say $100k cash that someone else has lent you. The brokerage knows you’ll need lots of cash in future, so they need collatoral to let you withdraw it. When you do, the value of your account will be $100k lower than it was before.
With this, your brokerage account has say $100k invested, but it’s not currently in the form of cash. Your brokerage is willing to lend you $10-50k cash, and let you withdraw it; but they need both collatoral and interest for that. When you withdraw it, your account will still be worth $100k.
Not sure I’ve understood your question, but if you withdraw from your account, the value goes down, whether you’ve sold a box spread or just have a margin loan.
Hm. “Value” might not have been quite what I meant there. The thing I was pointing at was that if you start with $100k worth of google stock in your account, you’d (if I’m understanding this correctly) still have $100k worth of google stock, even if the brokerage also marks you as having a $10-50k liability. You might have to liquidate some of it in future if there’s a margin call, but your goal is presumably to avoid that.
In light of this, to clarify the first point—“When you do, the value of your account will be $100k lower than it was before”—I meant $100k lower than it was before withdrawing, because previously your account had $100k cash and now it has $0k cash. I was thinking it would be the same value as it was before you sold the box spreads. But if selling the box spreads doesn’t change the account value much—if the brokerage marks you as having $100k cash but also a ~$100k liability—then after withdrawing, the value is lower than before you sold the spreads.
But if selling the box spreads doesn’t change the account value much—if the brokerage marks you as having $100k cash but also a ~$100k liability—then after withdrawing, the value is lower than before you sold the spreads.
This is correct. The brokerage shows cash + a liability.
Thanks, I didn’t know these.
To clarify, the difference between this and the box spread loan is:
With the box spread, your brokerage account gets deposited say $100k cash that someone else has lent you. The brokerage knows you’ll need lots of cash in future, so they need collatoral to let you withdraw it. When you do, the value of your account will be $100k lower than it was before.
With this, your brokerage account has say $100k invested, but it’s not currently in the form of cash. Your brokerage is willing to lend you $10-50k cash, and let you withdraw it; but they need both collatoral and interest for that. When you withdraw it, your account will still be worth $100k.
?
Not sure I’ve understood your question, but if you withdraw from your account, the value goes down, whether you’ve sold a box spread or just have a margin loan.
Hm. “Value” might not have been quite what I meant there. The thing I was pointing at was that if you start with $100k worth of google stock in your account, you’d (if I’m understanding this correctly) still have $100k worth of google stock, even if the brokerage also marks you as having a $10-50k liability. You might have to liquidate some of it in future if there’s a margin call, but your goal is presumably to avoid that.
In light of this, to clarify the first point—“When you do, the value of your account will be $100k lower than it was before”—I meant $100k lower than it was before withdrawing, because previously your account had $100k cash and now it has $0k cash. I was thinking it would be the same value as it was before you sold the box spreads. But if selling the box spreads doesn’t change the account value much—if the brokerage marks you as having $100k cash but also a ~$100k liability—then after withdrawing, the value is lower than before you sold the spreads.
This is correct. The brokerage shows cash + a liability.