Portfolio financing
Why borrow instead of sell?
Selling raises cash by giving up shares. Borrowing raises cash while the shares stay put. The tradeoff is interest and collateral rules, against a sale you might not want.
Key takeaway
Investors borrow against a portfolio when they want cash and want the position to remain. Selling is the path that can realize a gain.
One illustration
A position is worth $1,000,000 and has a $400,000 cost basis. The holder needs $200,000. These rows are arithmetic, not a tax bill.
| Sell $200,000 | Borrow $200,000 | |
|---|---|---|
| Share of the position | 20% | None sold |
| Basis attached to that share | $80,000 | — |
| Gain realized by this step | $120,000 | None |
| Position afterward | $800,000 | $1,000,000 |
Basis, holding period, and account type decide what a real sale would owe. This page is not tax advice.
What this means
Borrowing does not make the gain disappear. It postpones the sale. Interest accrues, and the securities can still be sold later if collateral rules are breached. That later sale is the liquidation risk.
Related
Borrowing against a portfolioHow much can I borrow?What are the liquidation risks?Haven SPX Box RateFinancing simulator
Haven Funding LLC is owned by Haven Systems LLC. Neither firm is a bank or a registered broker-dealer. Securities and execution services are provided through Interactive Brokers LLC. The Haven SPX Box Rate is a constant-maturity reference rate. It is not a Truth in Lending APR and not a commitment to lend.