Margin Trading & Asset Backed Investments: Small Investors inability to grasp the Concept

No matter how hard one tries, a greedy mind is not easy to control. Besides, you start losing sanity & rationale the minute you fall prey to greed & hunger to make quick money, through whatever means one could think of

Dubai’s recent nose dive in real estate industry is a classic example, how do we explain a situation, where a real estate project is being sold to investors, at a time when the builder has not even started digging land! and offices, flats on the proposed 60th floor are being traded on paper? isn’t this being suicidal? I know friends who were amongst millions of other investors who lost money and some had lost their life long savings

The question is, is it really fair to blame the broker? for not creating enough awareness on the risk factors attached with speculative trading? I would choose, not to blame brokers for a simple reason, that it is there bread & butter to invite investors, trade over & over again. And in all fairness, one tends to get casual when there are hundreds of customers waiting to be attended, no matter how harsh the regulations are, brokers job gets finished once he writes a one small disclaimer, telling his investors to take due care as investments can go up or down

The question remains, how does one control greed? and if not curtailed in the beginning, it changes into gambling, where people take another step to reach the “final nail in the coffin” situation, when they start borrowing against an already over leveraged equity that was hardly 10% of the total portfolio and later on goes down to even 2-3% if one goes ahead to borrow further. It means that the minute your portfolio goes down by 3%, you are gone completely

My request to small savers, please be very careful in dreaming such fantasies. Don’t put your family in a never win situation

Its good to explain briefly, the facts behind margin trading & also the benefits of asset back investments. Margin trading works well only for institutions with deep pockets, and with high net-worth individuals because if the market goes down, they have resources to avoid a panic situation, by simply paying off & take physical delivery of an asset rather than selling to settle the lost trade. They have resources to sit on that buying for weeks before market rebounds and they make an exit

On the rationale of asset backed investments, please don’t buy something which doesnt even exist, this is for all investors, irrespective of one’s financial resources because there is no tangible asset to hold on to in the event market crashes. How do you salvage a situation, holding a piece of paper that says you are the owner of a proposed flat on the 60th floor, in a situation of panic because the land itself was bought on borrowed money, and even if it was owned 100% by the builder, it cannot be worth enough to secure the size of investment that had already been injected ahead of construction. Meaning there is no recourse to such a situation, everyone walks out as losers

 

 

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