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Don't try this at home. How credit card arbitrage funded my first company.

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Re: Don't try this at home. How credit card arbitrage funded my first company.

#61

Post by typicalrunt »

bluena wrote: post #45
feral wrote: post #41

Earlier quoted context omitted.

I don't think what you are talking about is arbitrage, either. You are talking about using interest free loans from credit cards in order to make a leveraged bet on the price of gold; that is not arbitrage. If gold decreases in price - and its close to record highs, however you want to intrepret that - you are taking a huge risk.

agreed. buying gold is risky. instead puting it in a 2% account would be wiser.

However, once you factor in inflation -- which runs at or around 2% depending on the country you live in -- you are making no money at the end of the year.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#62

Post by gee_totes »

I worked with someone who financed a feature film on 67 credit cards. He didn't make his investment back at all, and had to disappear for awhile, as he was saddled with about $300,000 in credit card debt. But when the credit card companies did catch up with him, years later, he was able to settle his whole debt for about 30k.

Running from the credit card companies ruined his credit, of course, but I wonder if the author of the article would have gotten a better rate of return if he had just hid from the credit card companies, waiting for them to get desperate enough to settle.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#63

Post by driverdan »

This isn't arbitrage but it's a good article anyway.

I did something similar about 5 years ago but with "investing" the money in HYIPs (high yield investment programs). I was woefully ignorant of how many of these are scams (99.999%) but managed to make a decent return and not lose my shirt.

I wouldn't recommend doing this to anyway. The risks are extremely high.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#65

Post by chris_gogreen »

I think you are talking about moving balances between cards, sometimes called floating. It might loosely be arbitrage if you use the cash back features to think of the value of a dollar spent on one card being less than the other. If 3% cash back, spending one dollar on the card really only costs 97% of one dollar, then pay it off with a normal 0% cash back card.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#66

Post by chris_gogreen »

kevinpet wrote: post #53

1. This isn't arbitrage. Arbitrage has a specific meaning (profiting from price disparities in the same item in different markets). This could be described as a carry trade, but it's mostly just an inconvenient way to get a business loan. 2. This isn't even correct. It claims that you can get your credit score for free, which is incorrect. When I notice one error, I suspect there are other errors.

I get a free score from all 3 bureaus for free once a year.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#67

Post by derobert »

nirvana wrote: post #46
feral wrote: post #41

Earlier quoted context omitted.

I don't think what you are talking about is arbitrage, either. You are talking about using interest free loans from credit cards in order to make a leveraged bet on the price of gold; that is not arbitrage. If gold decreases in price - and its close to record highs, however you want to intrepret that - you are taking a huge risk.

Maybe I should have been more clear. What you're arbitraging is two rates of return-- the interest rate of the loan, and the return of the investment. In more conventional arbitrage, you're buying a commodity at one price in one market and selling it at another price in another market at exactly the same time. Here you're doing that, only the commodity is money. (Gold is money.) You could substitute a foreign currenc…

You're missing the key point of arbitrage: its risk-free.

Say you borrow $100k at 0% for 1 year. You then buy (at $1734/oz) ~57oz of gold. Next year, you plan to sell it and pay off your $100k.

But you've taken a risk. If gold is only $1500/oz next year, you're going to lose ~$13k. Of course, if its $2000/oz, you're going to make a nice profit. You're speculating on the gold market. You could build a similar position with gold futures, for example.

Arbitrage would be if you could take that $100k, and immediate buy gold in USD, sell it in EUR, and then buy USD with those EUR and wind up with >$100k. Then you're not taking any risk, because you can set up all those transactions practically at the same time (and the markets are liquid enough you know the prices you'll be able to buy/sell at).

Re: Don't try this at home. How credit card arbitrage funded my first company.

#68

Post by byrneseyeview »

nirvana wrote: post #35

This isn't credit card arbitrage. Let me describe one idea for how Credit Card Arbitrage could work. You take out a bunch of credit cards, as he describes. Preferably ones with zero interest for the first year, or 6 months. You extract as much cash from them as you can. You put a chunk of that cash in the bank to make minimum payments from, and then you put that cash into an asset that will return more over the next…

The point about gold is not accurate. Arbitrage means going long and short equivalent amounts of equivalent assets. So it's arbitrage if you borrow at 0%, and invest in a CD at, say, 1%. It's not arbitrage if you borrow on your card and invest in a non-dollar asset like gold, unless your credit card liabilities are also denominated in gold.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#69

Post by nikcub »

In most other countries and with some cards the introductory low or zero interest rate is only on purchases and not on cash advances or withdrawls.

There are a few ways to get around that. You are probably breaking money laundering laws if you do, though - so, disclaimer.

Find a friend or family member who has a small store and merchant account, or setup your own merchant account in a company name, or put up an item on ebay with a buy it now. Create one or a number of fake products with realistic looking prices (some merchant terminals let you enter an arbitrary price).

Buy it with your new card and kick back the cash, minus the transaction fee.

You can then just keep bumping the balance to a new card when the introductory period is up - just pay the minimum payments (which are usually very low). Juggling to new cards with introductory rates is a lot better than applying for many cards at once. It just looks like you got sick of your last bank for poor service etc.

Re: Don't try this at home. How credit card arbitrage funded my first company.

#70

Post by 2arrs2ells »

typicalrunt wrote: post #61
bluena wrote: post #45

Earlier quoted context omitted.

agreed. buying gold is risky. instead puting it in a 2% account would be wiser.

However, once you factor in inflation -- which runs at or around 2% depending on the country you live in -- you are making no money at the end of the year.

No, as a borrower, inflation works to your advantage.

i.e. I borrow $1k at 0% for one year. I put the money in a 1 year CD paying 1% interest. At the end of the year, I pay back the loan with the CD's principal, and put the $10 interest in my pocket.

Even if inflation were 2% (or 10%, or 100%), I am still making money - no matter how deflated the value of the dollar is, I still have more dollars in my pocket than when I started.

(Inflation hurts lenders of money, not borrowers)

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