Can I Use a Credit Card to Buy Stocks?

By Joseph Nicholson

  • Overview

    No stockbrokers, even the online discount ones, accept credit cards to buy stocks in direct transactions. The very proposition smacks of desperation, of trading with money that you cannot afford to lose, and brokers highly discourage such behavior. Using borrowed money is not unheard of, but it is always highly risky behavior.
    Can I Use a Credit Card to Buy Stocks?
  • The Facts

    No professional would ever recommend using a credit card to purchase stocks. Losing borrowed money is much worse than losing your cash on hand because it creates a lasting debt that will continue to grow through assessed interest. Though no one wants to lose money, or sets out to, the general rule of thumb is to invest only money that you can lose without hardship.
  • Considerations

    Though a credit card cannot be used to buy stocks directly, it is possible to take out a cash advance on a credit card and use these funds toward stocks. In many cases, a cash advance can be deposited into a bank account. If the account is an online brokerage account, the cash advance can be used to buy stocks.

  • Warning

    The interest rate on credit cards is frequently above 5 percent, and in many cases well over 10. The interest rate on cash advances is usually even higher. You must realize at least this level of capital gains just to break even on using a credit card to buy stocks. Most stocks rarely generate these sorts of returns on a consistent basis, however, and it would take considerable skill to trade so that your overall effort is profitable. Time, of course, is the critical factor determining the cost of the credit card purchase, but timing the market is one of the most difficult types of trading to do.
  • Types

    There is, of course, a more acceptable way to borrow money for buying stocks, and that involves a margin trading account. Like using a credit card, a broker can allow a trader to spend up to twice as much money as there is in the account, and will treat this money as a cash advance payable at interest. Opening a margin account, however, is subject to minimum balance requirements, credit checks and margin maintenance requirements. In some ways, trading on margin is even more risky than using a credit card to buy stocks, but the barriers to entry are designed so that only more resourceful and experienced traders take part.
  • Effects

    While it may be possible to take out a cash advance on a credit card and use it to buy stocks, it's unlikely that after transaction costs and fees you will make enough money to warrant the risk. In a worst case scenario, however, the result can be outright bankruptcy if you lose the advance and are unable to pay back the credit card in a timely fashion.
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