How to maximize your buying power with leverage
Today I broke a cardinal rule of investing: Only invest what you are able and willing to lose.
By using leverage to purchase Bitcoin with money I didn’t actually have. Leverage is using debt to purchase assets. Before you conclude how crazy and reckless I am, continue to read for the full story.
Bitcoin and cryptocurrency obsessed.
Over the past few months I’ve become possessed by cryptocurrencies and more active trading styles. The past few years I’ve been studying for and using a longer term style of investing by buying and holding. That’s still how the majority of my investments are held; in fairly moderate risk assets that are meant to be held for the long term. Such as total market ETF funds .
But the last few months I’ve began researching active day trading (buying and selling within a day or a matter of hours) and swing trading (1-3 week trades) by studying charts and various holdings. Specifically cryptocurrencies – such as Bitcoin.
The past week in the first week of December 2017 has been insane, bitcoin rising – and falling – between thousands of dollars per day. Based on the charts and technical analysis, in combination with news and opinion in various online communities, I foresaw a correction – dropping in price – coming soon.
The past 24 hours as of writing this brought that dip. A day or two ago as of writing bitcoin was at $21,000 CAD, and a few hours ago it dropped down to $16,200 on the exchange I purchase my bitcoin.
Seeing this drop unfold as predicted, I decided this would be my next buy in period. Unfortunately, I was waiting on my next pay cheque to come the following week. I also had taken some profits out of a Marijuana stock to move into Bitcoin.. But they wouldn’t be arriving to my account until the middle of next week with transaction times.
Not wanting to miss out on this buying opportunity, but not having the money available to actually purchase some Bitcoin with.. What was a guy to do?
Prepare for the unexpected
Thankfully about 2 years ago I opened a line of credit with my bank. Lines of credit are essentially credit you can access at any time from your bank if you should need. Similar to a credit card but typically with some different stipulations and rates.
NOTE: Make sure you speak with your bank and understand how lines of credit work before using one.
I was told many years ago by someone older and wiser than myself, that you can always get money when you don’t need it, but try accessing money when you actually need it. It becomes much harder.
For example, say you have 5 figures in savings, a job and everything is going fine. The bank is more than happy to lend you more money.. Because you have assets they can grab if you default on your obligations to them.
Now let’s say emergency strikes eating up all your savings, and you lose your job.. Try going to the bank for a line of credit then.
This thinking lead me to open a line of credit for as much money as I could get approved for at that time when I had a steady full time job and more savings than necessary sitting in the bank collecting no interest or gains.
That line of credit sat unused for nearly two years, until now. I saw an opportunity through my research and experience and decided to use my line of credit to capitalize on it.
I cannot stress enough the dangers of using leverage – money you don’t actually have – to invest. ESPECIALLY in something as volatile and risky as bitcoin. In all honesty cryptocurrencies at this point are more speculation than investing. It’s the wild wild west out there right now. The markets run 24/7 and they are currently completely unregulated.
The main reason I did use this leverage is because I will be able to pay it back within a few days.
I have heard stories of people taking out $30,000 loans to buy bitcoin at $200.. That sure worked out for them. But for each of those stories there is probably 10 where someone lost their house and can’t afford to feed their kids.
A day later, Bitcoin has pushed back up to its previous level – about $3,500 higher than the dip I purchased at – so currently this move was a win. But tomorrow it could drop 30-50%. Wild swings like this are common with cryptocurrencies.
Be ready for opportunity
I tell you this story to open your mind to the possibilities for accessing capital. I also routinely try to raise my credit card limits so that I have access to as much capital as I possibly can carry at any time should an opportunity – or emergency – arise.
Credit cards are another way you can increase your buying power, albeit they are even more dangerous than lines of credit as a form of leverage.
A few years ago I had an opportunity to purchase a business with a friend that came with a price tag much, much higher than I could have currently afforded at that time. Accessing the capital to purchase the business was one of the main obstacles in our path. Had we been prepared with more leveraged capital we may have came closer to actually getting that business. I’ll leave out our lack of experience and knowledge as another contributing factor to why we didn’t succeed in this venture.
How to increase your capital today
If you have a steady job, a car, house, and/or any financial assets you should have no problem calling up your bank and credit card company to increase your limits today. The more these institutions can potentially lend you, the more they can potentially make in interest so they are happy to do so.
This strategy is only for people who have knowledge of how money and interest works, and also those who have the discipline not to run wild thinking they have just dug up some free money.
Buying Bitcoin using leverage is probably not smart.
From an objective standpoint using leverage to buy Bitcoin is probably the worst ways to use it, but because I have the funds to pay it back in a few days, and did my research I took a calculated risk that so far has paid dividends.
Remember investing of any sort brings with it serious risk, and again you shouldn’t invest what you aren’t willing to lose. I am not a financial advisor of any sort at the moment so take what you read with a grain of salt. I’m just a guy who finds this stuff thrilling, has done and continues to do research on the subject.
Are you currently invested in cryptocurrencies? If so which ones, please comment below!
Would you like to learn more about Bitcoin and cryptocurrencies? Comment below or email me directly at firstname.lastname@example.org I am always happy to give some guidance.
Do you know of any other ways to increase your buying power or leverage your money/assets strategically? Let’s get some dialogue going in the comment section!