So the idea is pretty simple: Say there's broker A, and broker B, which both offer margin rates of 2% APR. You open a margin account with broker A, and a margin account with broker B.
You deposit $1000 into the account with broker A. You then buy $1000 worth of Vanguard funds or some other relatively safe fund. Then, you withdraw a $1000 from your margin with broker A, which opens a margin loan for $1000.
Now, you're paying 2% APR to broker A for the $1000 loan you opened--which is fine as long as your returns are > 2% a year for the stocks in that account. You're actually still making money, albeit slightly less so.
You then take the $1000 you withdrew to broker B, where you also put that money into Vanguard funds/something safe. You can now take out a margin loan against those stocks by withdrawing the $1000 from broker B.
In theory, you can repeat this as many times as you want, increasing your margin leverage additively (you can invest N * your money, where N is the number of brokers you have accounts with).
My question is, aside from the fact that this is probably a silly thing to do given the duplication of risk, is there any legal downside to it? Do brokers frown upon it? Are there regulations that you're breaking? Come tax time, does the IRS care?
Submitted June 01, 2015 at 04:20PM by yolotrader http://ift.tt/1GTiN6X
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