• Sharebar

I was wondering if it's possible to take out a student loan to trade. Is it illegal if the loan is from a private institution? Is it illegal in general?

I'm about to transfer to a real university from a community college and I have to take out a loan anyways so might as well throw in a few grand to trade with no? I want to day trade equities but you need at least 30k which would impossible to get, I think, so I'll have to stick with futures/options. I already trade forex and I want to branch out.

And what are your thoughts on this statement:

Quote:
The odds are way better nowadays that you'll make more money from trading than a college education

Comments (27)

  • TOJSHU's picture

    Go for it take out a margin account so you can play around with about 80K. If you think you can beat the market and are willing to use someone else's money then go for it. Worst case you just file bankruptcy everyone is doing it these days...Stay away from levered etf's though. when you take out margin and it turns into a 6/1 play they can move against you pretty quick.

  • In reply to TOJSHU
    nontarget kid's picture

    TOJSHU wrote:
    Go for it take out a margin account so you can play around with about 80K. If you think you can beat the market and are willing to use someone else's money then go for it. Worst case you just file bankruptcy everyone is doing it these days...Stay away from levered etf's though. when you take out margin and it turns into a 6/1 play they can move against you pretty quick.

    Why are you encouraging him to destroy his credit rating?

  • Working9-5's picture

    Would you fund your trading by charging it to your Mastercard or Visa? Your answer should be no.

    Rule number one for beginners: Do not trade money you cant afford to lose. Just save up (1.5-2k should be enough) and set up your risk management before you trade. Make notes on every trade and write down what went wrong/great in that trade. Set an entry price, stop loss and when you should cash in before you hit the execution button. When I traded back in HS and college, there were a couple of times I thought my risk mgmt was too tight (seeing postions hit stop loss just to bounce back up). However, I cant count the times my stop limits have saved me from losing more than just a few dollars (think DNDN's crash Aug 3rd to Aug 4th).

    Picking stocks isn't hard when your starting out. Being disciplined is the hard part. Better to have some cash on hand than hoping that your 610 entry in AAPL will bounce back up tomorrow.

    CNBC sucks

    "This financial crisis is worse than a divorce. I've lost all my money, but the wife is still here." - Client after getting blown up

  • TOJSHU's picture

    Or he could take out a large loan and put it into a regional band preferred stock BBT or USB, clipping a 6.5% dividend or so. These names are thought of as quite healthy. I think "day trading" is probably only really profitable for a small amount of people. It's gambling dude know everything about two or three names and play it like that is my advice.

    Like said above never risk more than your willing to lose.

  • low_key's picture

    I have traded futures and options before and I was profitable with that i just decided to put my money into forex, which I am also profitable in, because it was a lot more convenient with my scheduling. But I used the funds from my account to pay for all the apps and the deposits for the schools I applied to. I'm not gonna take out a 30k loan, i was thinking more on the lines of 1000-3000 so that way I can at least try all the products, except equities of course.

  • streetwannabe's picture

    It's completely legal. You just have to find a loan institution that will create an account or deposit for you (as opposed to direct deposit to your school account).

    That being said, it is still a very risky idea. I would advise against it. You'll have plenty of time to trade when you're older and can risk your own money.

    "History doesn't repeat itself, but it does rhyme."

  • accountingbyday's picture

    I'll actually take the opposing view here and say go for it, but you have to be very disciplined.

    DO NOT treat your student loans like a piggy bank. Figure out what you actually need to pay for school and take that amount + $2,500 ONCE. Give yourself one chance at this, because like others have pointed out - as a retail investor the odds are against you.

    In the long run, if you work hard at investing this money and you have a general passion for it (possibly making trading a career one day) the experience alone will be worth $2,500. It would be great if you make money, but the odds are against you. I know you said you've had some previous experience trading, but really consider your risk profile and how much luck factored into your previous results.

    It's also worth noting that student loans are not forgivable in bankruptcy so you WILL have to pay these back. Also, TODSHU is an idiot - don't follow his advice.

  • djfiii's picture

    I'm giving away my age here (although I think I've already done that in prior posts), but I was doing an internship in Silicon Valley when Juniper Networks went public. A small group of us decided to go all-in with our student loan disbursements from that semester. We each got in with about $10k, got out with about $30k. Not sure if it was against the rules to use our student loans that way (probably), but I never heard anything about it. One kid paid cash for a new Honda Accord before driving back to school with it. I'd be very reluctant to do that in this market though - I was just in the right place, at the right time.

  • Impartial.Spectator's picture

    i would highly advise that you don't do this.. taking out loans for your education is risky enough, yet one of the safest investments-taking out loans to trade is just silly unless you have the utmost confidence in your abilities...given that you are considering trading a market that you've never traded for the first time, with borrowed money, this sounds incredibly risky. I'm not trying to discourage you from following your dreams, just think twice before you decide that this is the best way to go about it. Maybe trade a paper account for a while before you make the leap--yes I know that paper vs real account isn't the same, but it's a good gauge, and better than diving in headfirst.

    "Your imagination is your preview of life's coming attractions."
    --Albert Einstein

    http://davincisdelta.wordpress.com/

  • GMngmt's picture

    I've been down this road so I'm not going to advise you one way or the other. That's your own choice but everybody's situation is different. With that said Working9-5 makes strong point:

    Quote:
    Rule number one for beginners: Do not trade money you cant afford to lose. Just save up (1.5-2k should be enough) and set up your risk management before you trade... Better to have some cash on hand than hoping that your 610 entry in AAPL will bounce back up tomorrow.

    I know from experience and I was told, "Don’t trade with money you need to buy food and pay bills with" and certainly not borrowed. I would instead suggest using savings for college instead. I saved about $3,000 and went through it quickly (not from partying and binge buying). Or if you're bold don't go to college yet and try trading first by working, saving ,and continuing what you're doing. If you can't garner enough money that way, then think of it as a "you're not ready to trade" signal because if you don't come financially prepared you will end like the remaining 90% who don't succeed.

    Originally, UFOinsider made a good point too about paper trading. One thing, I've learned is that paper trading is valuable (but limited) to learn the mechanics without risking capital, albeit there is an inherit propriety to which simulator you are using. The latter is the most important. I myself want to trade options, however it’s imperative that I learn the mechanics of the trade and the how the Greeks work together and the behavior of the underlying. The same thinking applies, understand and get a good grasp of the fundamentals of the market which you want to trade in and with proper capital and risk management…then go for it!

    Lastly, I don’t suspect you’re Finance major (non-offensive). Essentially, what you're wanting to do is borrow a certain sum today and asymmetrically risk it for the conditional probability of a net positive present cash flow while financing it against future expected cash flows on a deferment while accruing at a said interest rate over time. Basically, you’re deferring your risk exposure but not changing the nature of the transaction, a certain sum (principle) for an uncertain cash flow (profit / loss) with a claim against your future earnings (loan). In my opinion, it's a losing trade.

    Who Am I? | See what GMngmt is all about at About.Me

  • Fredbird's picture

    Gotta agree with the majority here. Either stick with the money you already earned, or take out only a small lump-sum of say 2-3k. 2k to start trading with, 1k as reserve in case you go broke. After that no more. You don't just want to come up with a return > 0, but also need to consider the interest to be paid on your student loan, upping your benchmark.

  • HumPiranha88's picture

    Do it if you want but write it off as entertainment. You need to cover interest on your loan and transaction costs before you make any money. On top of that, if you don't want to get crushed by fees you'll have to limit your trading so that means you'll probably be posting margins which makes your position that much riskier. If you want to do it for fun and don't mind taking total loss on 1-2k or whatever, go for it but If it's for educational purposes, just paper trade.

  • In reply to historiclegend
    wolverine19x89's picture

    If your dreams don't scare you, then they are not big enough.

    "There are two types of people in this world: People who say they pee in the shower, and dirty fucking liars."-Louis C.K.