Month: June 2015
Securities Finance – What Everyone Should Know
In today’s world of loans, lenders expect that the borrower provide some type of ‘collateral’ in case the borrower is not able to pay back the loan in the future. Collateral is something valuable, with absolute value that the lender can posses from the borrower if the loan can not be paid. There are many types of collateral, and one of them is financial securities.
Financial securities are instruments that people use to invest money, such as bonds, stocks, mutual funds, and t-bills. These financial securities are worth a certain value, and may gain or lose value of time. Many financial institutions recognize these instruments and understand their value. Certain lenders will even allow a person to use their financial securities as collateral for a loan. Securities finance lending has been around for a long time and today it is estimated that over $2 trillion in these loans exist globally.
One type of securities financing is known as a ‘stock loan’. A stock loan is used by an investor who owns free trading stocks and would like to convert their stock equity into cash without selling the shares. These types of loans use stocks or bonds as collateral. The borrower places their stock up as collateral to receive a certain loan to value (LTV) of the shares current worth. There are a few types of stock loans that exist. The shareholder may place the stocks as collateral for a non-recourse stock loan or they can get a margin loan.
The first option, the non-recourse stock loan will give the borrower the ability to borrow money against the value of the shares that would be placed up as collateral. These loans are similar to home equity loans for stocks. The borrower is able to borrow against the current value of the securities offered as collateral. Since the shares of the stock are such solid collateral, the borrower is usually granted a very low interest rate for the term of the loan. At anytime before the end of the loan term, the borrower may choose to either pay back the loan releasing the lien receiving all the appreciation, or if the stocks have lost value (below the LTV), the borrower may forfeit the shares instead of paying back the loan. The title of the stocks stays in the name of the borrower at all times so it is a secure transaction. These loans are very useful to a stock owner who needs cash for any purpose but does not want to sell their shares.
Another option is a margin loan. This type of loan allows the borrower to buy more shares of stock with money borrowed against the value of the stock placed up for collateral. Most lenders will offer a reasonable LTV on these margin loans as they are used to buy other securities that will be held under control of the same brokerage. The biggest difference is if the value of the securities begins to drop below the LTV, the borrowers will be required to sell all of their shares before the lender’s money is lost or put an immediate cash infusion to make up he margin requirement of the loan. When this happens it is called a margin call. A non-recourse stock loan can help you pay off a margin call if needed.
Depending on your scenario, either could work, but a non-recourse stock loan has more benefits than a margin loan and allows for more flexibility.
I Thought This Was Very Strange
I have been doing a lot of messing around on reddit and other social media and I have become really confused when I happened to learn that you can buy reddit upvotes. I just can not see the purpose, but I suppose there must be people who figured out ways to make money on the platform. Obviously I know that there are plenty of people who make a lot of money on the other platforms. There are kids on YouTube making millions doing toy reviews and of course there are all sorts of people there who specialize in making videos of every sort. Some of them try to be funny or entertaining in some way, others try to inform the audience. Of course they are informing them about video games most of the time it would seem. They have twitch which is where people have other people watching them play video games, which seems like a foolish thing to me.
If you have enough followers on Instagram or something, then you can become what they call a social media influencer. I know the woman who was caught trying to get her daughter into some college, well the daughter was making a lot of money playing a spoiled rich kid on the internet. I can just think about what my great grandfather would have thought about this if he were still alive. Of course he used to tell me about working for a coal mine and saying that you needed a really good mule to make a good day’s pay back in the olden days. I do not think that people from that era could even imagine the world that we live in today, of course my forefathers were all poor and they worked themselves to death trying to make an honest living.