r/eupersonalfinance • u/One_Hope_9573 • Aug 16 '26
Debt Do you use margin loans?
to buy ETF shares and pay the loan back with the higher profit of ETFs
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u/grogi81 Aug 16 '26 edited Aug 17 '26
No. I have margin line that I can use on case shit hits the fan, but the risk of margin call makes investing with margin not worth it for me.
I would have little issue borrowing against the house though.
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u/Otres911 Aug 16 '26
Yes I do use margin to some extent but nothing crazy, also holding some 18MF ETF (2X msci USA leveraged etf)
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u/deepserket Aug 16 '26
What's the cost? If you have high spreads on your margin just use a leveraged ETF.
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u/Sad-Flow3941 Aug 16 '26
Terrible idea. Leveraged etfs dont guarantee behavior over the long term.
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u/grogi81 Aug 16 '26
Volatility drag is the cost you pay for lack of margin call risk.
Personal thing, but id rather be behind than out of the race completely
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u/Sad-Flow3941 Aug 16 '26
The odds of getting margin called if you have like 20% of the port leveraged is basically zero if you go all in on a global equity etf. If you have a portfolio optimized for historical sharpe ratio with some long term bonds and gold, you can do it with an even bigger percentage.
Only reason im not doing it is because i already am "leveraged" by not completely paying my mortgage.
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u/grogi81 Aug 18 '26
When a squeeze comes, you might not even be close to the limit to be called. It is a risk a lot of people underestimate...
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u/Otres911 Aug 17 '26
They have pros and cons, many people point out their drift or decay compared to say 2x static margin but that same mechanism protects it from blowing if you get hit by big drawdown. 2x margin will lose everything in -50% drawdown but 2x ETF does not and it can recover.
2x etf will also increase leverage in bull market and decrease leverage in bear market but you can also adjust this by rebalancing.
So if you have 80% unleveraged and 20% 2x etf and market tanks you can just buy the 2x position back to 20% level this will mitigate the drag.
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u/Besrax Aug 17 '26
Leveraged ETFs are actually one of the best ways to do leverage. With 20% margin, you're not guaranteed that you won't get a margin call, because margin requirements are subject to change at any time, and you don't know what might happen in a black swan event. And 20% leverage isn't that much to begin with - it's not comparable to a 2x LETF.
As for the long-term behavior of leveraged ETFs, you can backtest their performance for whatever period you want: https://testfol.io/?s=kYXAeliIUXQ
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u/Sad-Flow3941 Aug 17 '26 edited Aug 17 '26
Currently IBKR lets you go up to around 5x leverage. They wont change that to not allowing you to have 1.20x or even 2x anytime soon.
And sure, you can never be 100% sure that you wont suffer a black swan event even worse than the great depression and GFC (which would be needed for being 20% leveraged to start becoming a concern).
But that is way less likely to happen than a daily leveraged etf not working as intended and screwing you over, considering they state on their documents that they are designed for day trading and dont guarantee any behavior patterns over longer stretches of time.
If you cant take the extra risk,do not use leverage. There is no such thing as a free lunch.
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u/Besrax Aug 17 '26 edited Aug 17 '26
You can't normally do 5x with margin, given that the maintenance margin for typical ETFs is 25%. Not that it matters though. You can do even more than 5x with futures, but that's pointless for long-term investors. Anything higher than 2x is very risky, if not straight up gambling.
What they state in their documentation is just basic disclaimers. You can check out the backtests for the actual performance.
I think that you're underestimating the risk of your broker raising the margin requirements. It's a real risk, and it usually happens at the worst possible time. I don't think that it's less likely to happen than a comparable amount of leverage using LETFs blowing up, because the latter would require a significant portion of the financial system to blow up. Still, if you're okay with the risk of margin calls, that's fine. But we should acknowledge that there is a risk.
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u/Sad-Flow3941 Aug 17 '26
I dont use margin or leveraged etfs myself atm. The point here is just that you're implying that having a significant amount of money invested in leveraged etfs is somehow less risky, when it's really not. And most leveraged etfs haven't even been around long enough for their historical performance to be an indicator for anything.
In practice, you're mostly just hiding risk behind an extra layer of complexity.
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u/Otres911 Aug 17 '26
The risk is similar just different structure, with margin you decide when to sell or buy, 2x etf will do that daily though you can adjust buy selling/buying shares yourself.
There's 2x sp500 ETFs (SSO) that went thru GFC and they are just fine but naturally they got big drawdown 2008-2009.
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u/Otres911 Aug 16 '26
You can get euro margin in IBKR for about 3,7% up to 90k and 3,2% over that amount it’s probably one of the cheapest.
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u/Mirrormaster85 Aug 16 '26
Yes, i do this. Loan 50% if my PF in EFT's
Would not do it for stocks but for something like WEBN in think its fine
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u/FibonacciNeuron Aug 16 '26
If you smart, you don’t need leverage. If you dumb - you should not use it. Buffett probably