This is not a question about margin. I am not structuring this as a survey or quiz, but I just think it might be an interesting discussion, to hear different views... If you could get an unsecured loan from a bank or some other lender--not a mortgage loan, but rather an unsecured loan that is structured a lot like a mortgage loan, e.g., monthly payments amortized over 20 or 30 years... How low would the interest rate have to be for you to be comfortable taking such a loan and using the money to trade? How much would you borrow? You may assume for this discussion that even though it is not a mortgage loan, you are nevertheless personally liable for repayment, and that you have some meaningful assets that would be subject to garnishment or attachment if you default on the loan. You may also assume that the loan is a genuine arms-length transaction from a disinterested lender, i.e., you are not borrowing the money from your brother-in-law, or any other type of arrangement that would create risk to family relationships, or other hard-to-quantify risks or variables.
I highly doubt any bank will lend you monies without collateral. Credit card debt which has very high rates, you might be able to get a cash advance with stiff fees on top of the interest which you all have to pay. With interest rates going higher, those fees and interest payments can only go higher. And if you are getting it from a loan shark with criminal connections, you probably, should not go there. Even if you are a good trader, winning trades are not guaranteed and you will have losing traders. Probably, lots of losing trades. Also, you have to have a winning trading system that has been backtested. Exercise proper risk management on top of that too. Looks like a foolhardy endeavor. Don't even get started is my advice.
Those are interesting thoughts... but you didn't really answer the question. Assume for this discussion that the loan is a legit unsecured loan from a bank--not a loan shark, not a credit card cash advance, structured like a mortgage, fixed rate, equal payments over 30 years. How low of an interest rate would you need to be comfortable taking the loan and trading with the money? Maybe your answer is that you would never be comfortable doing this, even if the interest rate was zero. And that's a fair answer.
If I were to take such a hypothetical loan, which I wouldn't, but if I were to even consider it, I would really suck as a trader if it took me twenty years to repay it.
Okay, well that was just one variable. Assume for this discussion that there is no prepayment penalty. You can pay off the entire loan in full at any time, and/or make extra payments of principal at any time.
I assume there would be no prepayment penalties nor risk of the loan being called. And that its on demand (that is you can instantaneously borrow as much or pay down as much as you want when you want, like a margin loan). If these are not valid assumptions, i would personally not take any money. If they are, then I would personally be less concerned about the interest and more interested that the loan can be paid down by another source of income. for example a line of credit from an operating business that generates enough cashflow to pay the LOC reqs. And in the meantime the business is paying down the interest, you are using the funds to generate further earnings. My limit would be as much as the other more stable source of income can support.
I would not be comfortable doing it. Maybe, I am too risk adverse. Others will be fine with it. On the interest rate, assuming you can get 2-3% probably. Most banks use our monies to trade and pay you, how much? 0.5% interest? What the banks earn from trading our monies they keep most of it, of course.
As much as I could get for about 0.5% p.a. Put it into a carry trade and buy a one way ticket to Africa in case the counterparty defaults
It's been a while since I had to borrow money, but at one time anyone with a job could get an unsecured line of credit. If you are personally liable it's not really an unsecured loan. The interest rate would have to be less than what you reasonably expect to return.