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Thursday, December 16, 2010

I am now a debt busters: my 5 000$ line of credit at 8.75% with TD Canada Trust is now paid off!

The weekend is almost there and I cannot wait! It's going to be my first weekend off since quite some time and I am quite happy about it. Even if this is going to cut on the cash available for investing.

Remember that I am having problem to transfer money from my online broker day trading account of my TD Waterhouse online section to my line of credit? Well, that's because my non-registered Canadian cash broker account is technically dead, but I continue to receive dividend payment in it. This could last a little while, but I wasn't provided an exact delay. It's just annoying since during that delay, I have no clue of who's paying me those dividend because I can no longer access my cash account... I have no choose other than to call TD Waterhouse investor services to find out. Also, I cannot proceed myself to any transfers from my cash discount broker account to line of credit account or what so ever else other account. Nothing can be transfer from my cash account anymore.

Basically, this mean that my online commodity broker Canadian cash account no longer exist. From now on, if I want to trade commodities online using cash coming from my very own pockets, I have to deposit the money in what is now my margin account. Example: let's say I have 2 000$ from my personal cash that I want to use to invest in my non-registered account, I will have to deposit the 2 000$ in my margin account. My 2 000$ in personal cash will be add to the 43 653.66$ that I currently hold in my margin account, to make a total of 45 653.66$. After what, I can trade using 2 000$ from the margin account. Technically, there's no more Canadian cash account, just a margin one, but I can still purchase stocks using my own money through TD Waterhouse securities.

I had that 8$ and something cents in the Canadian cash account that I was desperately looking to get transferred into my line of credit, the one at 8.75% in interest rate. The TD Waterhouse rep proceed to the money transfer since it's now impossible for me to proceed myself. After what, I also ask her to take the margin money to pay off completely that same line of credit. This mean that my 5 000$ line of credit at 8.75% is now completely paid off. But now that I am looking into my broker account, under cash, I have minus (-) and the amount that I requested to be transfer on my line of credit.... Nice, but the minus is under cash and not the margin...

This is confusing to start with because I am not use to margin and the information appear all in a different way that what its use to be. And now, I am wondering if the transferred had been done properly or not... lol... I am pretty sure yes, but still, that minus under cash is intriguing.

The interest rate on the margin account is currently of 4.52%. This is very good compare to the 8.75% of my 5 000$ line of credit. I am very happy to now have that line of credit completely paid off - and it will remain paid off. Borrowing cash on my margin was for me one of the best creditsolutions that I could choose.

In case of a deadly situation on the stock market (stock market loosing a lot of points on the same day), the money need to be available and need to be ready to get transferred back on the margin in case of need. But can such situation could happen? Well, it happen in 2008, and it could happen again. Also using only 30% of the money available of the margin account like I was suggested to do by a TD Waterhouse rep is a very good advise that will help me to minimize the risk I take by borrowing money online on my margin account. I will definitively be sticking to the 30% rule. Because TD Waterhouse can sell the assets even without giving first a margin call. REMEMBER: TD WATERHOUSE HAS NOW THE AUTHORITY ON MY STOCK DISCOUNT BROKER ACCOUNT. (lol...) But seriously talking, that's what you need to know about margin and that's exactly the reason why you need to be careful when buying stocks on margin.

The use of 5 000$ on my margin do not requested a minimum payment every month, but I will be paying the equivalent of the interest amount on a monthly basis. In my personal financial situation, margin is a great tool to use to pay off debt hold on line of credit at a higher interest rate (8.75% in this case). Margin is a great tool, but it will require me to monitor my account on a daily basis and preferably - many times during the day (if not just the Canadian stock markets). But since I plan to use only 30% of the margin money available, I play safe and hopefully, it will be just fine. I am understanding a bit better now and know a bit more of where I am going with all this. Margin is not difficult, but as delicate as an English rose.

1 comment:

The Dividend Ninja said...

HI Sunny, it sounds all very complex and confusing. I'm looking forward to seeing how this works out for you, so the rest of us can learn from you :) So good luck with all this and keep us infomred. Personally I'm hesitant to use margin ^^


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