Using a credit card to purchase stocks at Loyal3

[taxideataxus]

Looks like this got put up on FlyerTalk again under a more current thread. The timebomb has started ticking.

[KingCoin]

(you'll clear $1,000-$2,000 on bonuses, and lose $300 on the average $1000 invested capital).

To me that reads, for every $1000 you will lose $300. I don't know who else could construe that a different way. But I see that you didn't mean that and I see what you mean.

That's why I said you'd lose $300 on the "average" of $1000 invested, not "every" $1000 invested. Sorry if that wasn't clear.

I don't personally agree that the law of large numbers applies to something as volatile as the stock market. Not worth the risk, especially with the limited range of stocks you get with Loyal 3.

You don't have to agree, but it's a scientific fact that stocks follow a cauchy distribution of returns and thus the law of large number applies. Volatility has nothing to do with it. Think about counting cards in blackjack. It works amazingly well even though your edge is small and volatility on every individual hand is enormous.  Again, if you work through the math, it's basically 0 risk if you're allowed to continuously churn the portfolio.

Agreed that Loyal3 could pull the plug. In that case, you just liquidate and move on with your life. Maybe you even lose a few bucks if you catch a horrible day in the market. It's still a low risk proposition, especially compared to investing in the market in general. If it's not for you, that's fine.

[Ricky]

You don't have to agree, but it's a scientific fact that stocks follow a cauchy distribution of returns and thus the law of large number applies. Volatility has nothing to do with it. Think about counting cards in blackjack. It works amazingly well even though your edge is small and volatility on every individual hand is enormous.  Again, if you work through the math, it's basically 0 risk if you're allowed to continuously churn the portfolio.

Agreed that Loyal3 could pull the plug. In that case, you just liquidate and move on with your life. Maybe you even lose a few bucks if you catch a horrible day in the market. It's still a low risk proposition, especially compared to investing in the market in general. If it's not for you, that's fine.

Where is the proof that the law of large numbers applies to day trading? The only financial application for the law of large numbers I can find is the obvious one, where a business with a large market cap has a harder time growing than one with a small cap.

[KingCoin]

Where is the proof that the law of large numbers applies to day trading? The only financial application for the law of large numbers I can find is the obvious one, where a business with a large market cap has a harder time growing than one with a small cap.

It doesn't apply to day trading per se. It applies to average stock returns.

You can prove this for yourself by pulling up the price history of basically any stock. The average daily return is going to be very close to 0% (maybe + or - 20 basis points), even for volatile stocks. That's the law of large numbers at work. I just did the calculation for GOOG. Daily avg return 0.15% over the last year. This number will always be dwarfed by the 1%+ daily rewards you'll earn with a credit card.

[AJ]

Shutting this down would be profitable for those of us in the know ;)

...said every sleazy Wall Street tycoon and politician ever.

[ZMonet]

I see the CEO of Loyal3 is going to be on CNBC at 5PM EST tonight.  Might try and catch the video archive after it airs to see if he plays up the credit card aspect.

FYI -- I've now seen a couple of other trading platforms that allow credit cards.  The difference is that they have limitations (around $5k/month) and they return the money back to the credit card if you sell.  I assume this would be like a charge-back.

[arebelspy]

I assume this would be like a charge-back.

Typically, yes, meaning no rewards bonuses.

If he goes on an hypes using credit cards to buy stocks, how long until the next crash?

We're already at record levels of margin.

http://www.marketwatch.com/story/stock-caution-urged-as-margin-debt-levels-hit-new-highs-2014-03-09

[cowstash]

You can prove this for yourself by pulling up the price history of basically any stock. The average daily return is going to be very close to 0% (maybe + or - 20 basis points), even for volatile stocks. That's the law of large numbers at work. I just did the calculation for GOOG. Daily avg return 0.15% over the last year. This number will always be dwarfed by the 1%+ daily rewards you'll earn with a credit card.

Agreed, but you'd have to do this in high volume a lot of days to meet that average. For every day that's up 1.5-2%, there's going to be another day (on average) in the other direction. The problem is that we now know there is a limit to how much one can do this, and that limit is around $35k a month (though that level could also drop quickly). It looks, to me, that Coca-Cola (KO) has consistently had the smallest movement day-to-day of the stocks listed on Loyal3. I'll certainly report back on how I end up doing now that I have my chips on the table with them and a few others.

[KingCoin]

You can prove this for yourself by pulling up the price history of basically any stock. The average daily return is going to be very close to 0% (maybe + or - 20 basis points), even for volatile stocks. That's the law of large numbers at work. I just did the calculation for GOOG. Daily avg return 0.15% over the last year. This number will always be dwarfed by the 1%+ daily rewards you'll earn with a credit card.

Agreed, but you'd have to do this in high volume a lot of days to meet that average. For every day that's up 1.5-2%, there's going to be another day (on average) in the other direction. The problem is that we now know there is a limit to how much one can do this, and that limit is around $35k a month (though that level could also drop quickly). It looks, to me, that Coca-Cola (KO) has consistently had the smallest movement day-to-day of the stocks listed on Loyal3. I'll certainly report back on how I end up doing now that I have my chips on the table with them and a few others.

Yes. The law of large numbers doesn't apply if Loyal3 is only going to let you do this twice before giving you the boot. Still a great bet, just not a sure thing.

Seems a lot like the Republic Wireless model. They extend an option, but don't let you abuse it.

[ZMonet]

I assume this would be like a charge-back.

Typically, yes, meaning no rewards bonuses.

If he goes on an hypes using credit cards to buy stocks, how long until the next crash?

We're already at record levels of margin.

http://www.marketwatch.com/story/stock-caution-urged-as-margin-debt-levels-hit-new-highs-2014-03-09

He hyped the ability for consumers to access IPOs, so not much better in terms of foretelling a market top.

[medinaj2160]

So, can I still get on this deal?

My wife got the Chase Sapphire Preferred and I got the Barclay's card.

I bought
$1020 of Berkshire Hathaway
$1000 of Coca-Cola
$1000 of MacDonal's

on 03/18/2014 with Barclay's card let see when the transaction will go through

[KingCoin]

He hyped the ability for consumers to access IPOs, so not much better in terms of foretelling a market top.

Not surprising. This credit card stuff is just a loss-leader to get people on the platform so they can pitch their IPOs, not their primary selling point.

[innerscorecard]

Does anyone have a link to the Loyal3 CEO TV interview?

Also, have all credit cards everyone used treated this as a purchase for Professional Services or similar, rather than as a cash advance or similar? That's what I've gotten so far with Capital One and Chase, but thought we could share so we avoid any cards that treat this as a cash advance.

I am upset about this being on Flyertalk again. :(

[tj]

Somebody reported earlier that Citi coded it as a purchase, and they are the notorious ones for not coding this type of thing as a purchase.

[KingCoin]

Does anyone have a link to the Loyal3 CEO TV interview?

Don't have the one from CNBC, but there are a few other interviews from FoxBusines and Bloomberg here (scroll down a bit):
https://www.loyal3.com/about-loyal3.html

[innerscorecard]

Awesome, thanks guys.

So far I've waited for transactions on any given credit card to actually leave the pending stage and post before changing the credit card I have in their system and making new purchases of stock. Has anyone been more daring than that?

I've also tried to wait a few days before selling, and never buy and sell in the same day, so that I don't get flagged for trading or anything like that.

[tomq04]

Awesome, thanks guys.

So far I've waited for transactions on any given credit card to actually leave the pending stage and post before changing the credit card I have in their system and making new purchases of stock. Has anyone been more daring than that?

I've also tried to wait a few days before selling, and never buy and sell in the same day, so that I don't get flagged for trading or anything like that.

I was more daring, in that i bought/sold on same day, i have ~ 26k through this month, but i'm turning off the spigot until next month, and only sticking with my quicksilver 1.5% card.  I also only performed one "series" of transactions/day, meaning I would make all the purchases on the card for the day, and the next day I would change the card info and make the next purchases.

After reading about the shut down email a page ago, i'm going to take it easy, and hold the stocks for an extra day as well.

[cowstash]

So, can I still get on this deal?

My wife got the Chase Sapphire Preferred and I got the Barclay's card.

I bought
$1020 of Berkshire Hathaway
$1000 of Coca-Cola
$1000 of MacDonal's

on 03/18/2014 with Barclay's card let see when the transaction will go through

I also bought $2,000 in Coke on the 18th as well with my Barclay's card. Barclay's still has it under Temporary Authorizations, Loyal3 says it's posted the charge credit card order, and now the stock purchase one time buy order is pending. Presuming it posts today (after the promised two business days), I'll get the price of the stock today, right? Or is it the case that they presumptively bought it on the 18th but it won't post it until today?

[ZMonet]

You'll get the price of the stock when they buy it, usually sometime in the morning.  Sometime around 1-4PM, same day, you'll receive an email about the transaction and the purchase price.  You can also see, a couple hours earlier -- but not real time, the transaction if you go to your account and click on the transactions link.

[cowstash]

You'll get the price of the stock when they buy it, usually sometime in the morning.  Sometime around 1-4PM, same day, you'll receive an email about the transaction and the purchase price.  You can also see, a couple hours earlier -- but not real time, the transaction if you go to your account and click on the transactions link.

This is helpful to know -- I'll check back in on the site throughout the morning and report back what I find out. I'm curious to know the rough timeframe when they buy it.

EDIT: Looks like it posted on the website between 12:10 and 12:30 PM EDT, two business days after I put in the order. The share price I got was $38.23.

EDIT 2 Update: I put in the sell order just before 2 PM EDT the same day as the purchase went through, and ended up getting a sell price of $38.39. (Loyal3 is a little deceptive as when I went to put in my sell order, they showed me yesterday's closing price as an estimate https://www.dropbox.com/s/c5fb15ai67opxxq/Screenshot%202014-03-20%2016.52.48.png). All in all my $2000 buy on my Barclay's netted about $44 in travel reward credits and $8.38 from Coke's stock gains (plus it got me 2/3 of the way to my $440 signup bonus). Not bad!

[Kurosawa]

Great thread!

I have a rewards MC that pays back 1%.  It's not the best rewards card out there, but it has a $35k limit, and I don't really have the patience to apply for others.  I'm an expat living overseas, and it's a real hassle to arrange to forward new cards delivered to my US address.  Likewise it's a hassle to wire funds to my US brokerage account.  But I can pay my US credit card bill from here without any trouble.  So Loyal3 should be very convenient for me.

Normally I invest about $7.5k/month from my salary.  This will go up to $10k at the end of the year, if all goes well.  For this month's investments, I went ahead and set up an account with Loyal3 (which was fast and easy) and bought:

BRK.B $2,500
UL $2,500
MAT $2,500

It's an interesting idea to use Loyal3 for churning, but since I'm trying to stick to a long-term investment strategy, I'm not planning any buy/sell transactions solely to capture the rewards points.  I should get plenty of points from my normal purchases.  Also I have about $74k in AAPL that I've held for nearly a year.  When the 1-yr holding period lapses, I may dispose of that position and reinvest through Loyal3, which should give me a nice 1% kicker on my return.  I'm not sure whether Loyal3 will view my trades as "not in line" with their platform, given that I'm buying and not immediately selling.  But if I'm cut off from CC purchases, it won't cost me anything.  I'll have stock that I was planning to buy anyway, the points from prior purchases, and I'll even be ahead a bit from not paying trading commissions, which are $8.95/trade with my usual broker.  Seems a great deal.  To bad for the $2,500 per stock restriction, though.  If not for that I'd load up on BRK.B.

 

[cowstash]

Great thread!

I have a rewards MC that pays back 1%.  It's not the best rewards card out there, but it has a $35k limit, and I don't really have the patience to apply for others.  I'm an expat living overseas, and it's a real hassle to arrange to forward new cards delivered to my US address.  Likewise it's a hassle to wire funds to my US brokerage account.  But I can pay my US credit card bill from here without any trouble.  So Loyal3 should be very convenient for me.

I too live abroad, but luckily Uncle Sam forwards my mail for free, though it takes a couple of weeks. The nice thing with doing this online is that you don't actually need to have the card if there's someone at your address who could receive the card, help with activation, and send you the number/card details.

I'm thinking of possibly doing the same buying and holding as you are, but the Barclay's Arrival 2.2% credit towards travel purchases makes it all the sweeter. I just found out that the Barclaycard also has free Tripit Pro (which as a service is a bit hit-and-miss as far as design and usability), no foreign transaction fees, and free FICO Credit Score reports. I'll probably cancel it before the year is up and they charge the annual fee, but it'll be good for this year.

[tomq04]

Just got my nasty gram after 6 days of transactions out of the last 9, ~ 26k in.

Here is what they are upset with, I am not guilty of all of these, likely just Buy and sell orders submitted w/out regard of gain or loss.

ACH/credit card payment rejects
•    Changes in ACH/credit card data
•    Account owners sharing ACH/credit card accounts
•    Large or excessive cash deposits and/or withdrawals
•    Buy and sell orders submitted without regard of gain or loss
•    Changes in contact information, such as email and phone number
•    Activity that doesn’t appear consistent with a normal investment practice

[medinaj2160]

You'll get the price of the stock when they buy it, usually sometime in the morning.  Sometime around 1-4PM, same day, you'll receive an email about the transaction and the purchase price.  You can also see, a couple hours earlier -- but not real time, the transaction if you go to your account and click on the transactions link.

This is helpful to know -- I'll check back in on the site throughout the morning and report back what I find out. I'm curious to know the rough timeframe when they buy it.

EDIT: Looks like it posted on the website between 12:10 and 12:30 PM EDT, two business days after I put in the order. The share price I got was $38.23.

EDIT 2 Update: I put in the sell order just before 2 PM EDT the same day as the purchase went through, and ended up getting a sell price of $38.39. (Loyal3 is a little deceptive as when I went to put in my sell order, they showed me yesterday's closing price as an estimate https://www.dropbox.com/s/c5fb15ai67opxxq/Screenshot%202014-03-20%2016.52.48.png). All in all my $2000 buy on my Barclay's netted about $44 in travel reward credits and $8.38 from Coke's stock gains (plus it got me 2/3 of the way to my $440 signup bonus). Not bad!

My transaction has not gone through. I put the order on the 18th at 8pm, so hopefully it will go through tomorrow.

This is the price per share on 03/18 when I put the order; will see what price I get:

123.28 Berkshire Hathaway
97.31 McDonal's
38.40 Coca-Cola

[Kurosawa]

Just got my nasty gram after 6 days of transactions out of the last 9, ~ 26k in.

Here is what they are upset with, I am not guilty of all of these, likely just Buy and sell orders submitted w/out regard of gain or loss.

ACH/credit card payment rejects
•    Changes in ACH/credit card data
•    Account owners sharing ACH/credit card accounts
•    Large or excessive cash deposits and/or withdrawals
•    Buy and sell orders submitted without regard of gain or loss
•    Changes in contact information, such as email and phone number
•    Activity that doesn’t appear consistent with a normal investment practice

tomq04, did you sell at any point?  Or only buy (26k in)? 

[arebelspy]

I'm glad they're warning users. That makes them much more sustainable, and more likely it can be utilized in the future for smaller amounts to hit CC bonuses (say, 3k spending) but not used for high churn 50k/month for the 2% cash back).

I'd like to see it stick around, for selfish reasons, to utilize in the future.

[innerscorecard]

Ironic that they say that buying and selling without regard to gain or loss is bad behavior, seeing as how that is the only way you can buy or sell on their platform.

Bought about $5500 so far, and have sold about $4000 of that. Haven't bought and sold same day, but have only held for a few days. No warnings yet. Hopefully I stay under the radar. It seems that you need to hit at least five figures for warnings to happen. Maybe they will get more aggressive in their policing. Hopefully not.

[dragoncar]

Someone should keep going until their account is closed.  You know, for science.

[cowstash]

My transaction has not gone through. I put the order on the 18th at 8pm, so hopefully it will go through tomorrow.

This is the price per share on 03/18 when I put the order; will see what price I get:

123.28 Berkshire Hathaway
97.31 McDonal's
38.40 Coca-Cola

I think the working hypothesis is that they'll buy all of their stocks at some point between noon and 12:30 today, so that should determine the actual buy price, not what it was on the 18th. Yesterday I had a 1.5 hour window to put in the sell order the same day between 12:30 and 2 PM, and it actually sold around 2:27 PM. Granted, Coke and the rest of the market was generally up yesterday, so I had that going for me, but you may want to wait until next week if the market is down today. Good luck!

[cowstash]

•    Activity that doesn’t appear consistent with a normal investment practice

This seems like a catch-all, and I'd bet that doing a lot of same day churning from credit card in to ACH out is not what they would consider normal investment practice. We have to play by their rules, but it's good to see where they start to draw the line, which seems to be above $20k a month (at the moment).

[GoldenStache]

For those of you out there that have not tried it, it does take much longer than I was expecting to buy/sell/deposit/transfer.

3/13 Bought $2,500 of AAPL - $527.98
3/17 Sold 4.7350 shares of AAPL - $2,512.25 (Sold as soon as possible)

3/17 Bought $2,500 of McD - $96.63
3/20 Sold 25.8719 shares of McD - 2,505.70 (Sold as soon as possible)

3/21 - Cash from AAPL transaction appeared, transferred to bank


5,000 miles and $17.95

Side note:  I will make some small change keeping the funds in my checking account by raising my daily average instead of paying off the CC as soon as I could.   
 

[medinaj2160]

My transaction has not gone through. I put the order on the 18th at 8pm, so hopefully it will go through tomorrow.

This is the price per share on 03/18 when I put the order; will see what price I get:

123.28 Berkshire Hathaway
97.31 McDonal's
38.40 Coca-Cola

I think the working hypothesis is that they'll buy all of their stocks at some point between noon and 12:30 today, so that should determine the actual buy price, not what it was on the 18th. Yesterday I had a 1.5 hour window to put in the sell order the same day between 12:30 and 2 PM, and it actually sold around 2:27 PM. Granted, Coke and the rest of the market was generally up yesterday, so I had that going for me, but you may want to wait until next week if the market is down today. Good luck!

Today it says that I have an account value of $3200 vs $0 yesterday; but it says that I own zero shares.

[Fireman]

Side note:  I will make some small change keeping the funds in my checking account by raising my daily average instead of paying off the CC as soon as I could.   

I've thought about doing this with my Amazon Payments money.  However, I'd rather pay the CC as soon as the money hits my checking account instead.

[tomq04]

Just got my nasty gram after 6 days of transactions out of the last 9, ~ 26k in.

Here is what they are upset with, I am not guilty of all of these, likely just Buy and sell orders submitted w/out regard of gain or loss.

ACH/credit card payment rejects
•    Changes in ACH/credit card data
•    Account owners sharing ACH/credit card accounts
•    Large or excessive cash deposits and/or withdrawals
•    Buy and sell orders submitted without regard of gain or loss
•    Changes in contact information, such as email and phone number
•    Activity that doesn’t appear consistent with a normal investment practice

tomq04, did you sell at any point?  Or only buy (26k in)?

I sold same day as purchases went through :)

[cowstash]

I sold same day as purchases went through :)

I really wonder if it's the same day/same week selling after buying on a credit card that raises their ire. One thing I've been thinking of is buying about $1000 a month (with my credit card) and just holding it. I churned with my first few experiences only because I was a little wary and wanted to meet my credit card minimums, but a good dividend stock like Coke, McDonalds or even Apple now may be worth holding on to, and have the points/cash back be a bonus. Only time will tell if L3 is okay with that activity.

[arebelspy]

I sold same day as purchases went through :)

I really wonder if it's the same day/same week selling after buying on a credit card that raises their ire. One thing I've been thinking of is buying about $1000 a month (with my credit card) and just holding it. I churned with my first few experiences only because I was a little wary and wanted to meet my credit card minimums, but a good dividend stock like Coke, McDonalds or even Apple now may be worth holding on to, and have the points/cash back be a bonus. Only time will tell if L3 is okay with that activity.

Why wouldn't they be?  That's a very small amount, and if you're holding, that seems exactly what it's designed for...

[GoldenStache]

Update: Money was deposited into Bank this morning, so about 24 hours.

I was planning on keeping all of my gains in loyal so only moved my $2500.  Dumb idea, when I placed my next order it forced me to use those funds already in loyal and then would pull from my CC. 

[imbros]

I sold same day as purchases went through :)

I really wonder if it's the same day/same week selling after buying on a credit card that raises their ire. One thing I've been thinking of is buying about $1000 a month (with my credit card) and just holding it. I churned with my first few experiences only because I was a little wary and wanted to meet my credit card minimums, but a good dividend stock like Coke, McDonalds or even Apple now may be worth holding on to, and have the points/cash back be a bonus. Only time will tell if L3 is okay with that activity.

Why wouldn't they be?  That's a very small amount, and if you're holding, that seems exactly what it's designed for...

I bet that is exactly what they expect people to do, and it is the way to go if you ask me. I like mutual funds and don't usually purchase individual stocks, but the opportunity of purchasing a large cap solid stocks like BRK, Wal-mart or Google by credit card and getting the sign up bonus while doing it is great. I mean, if the Loyal3 was pushing small cap or penny stocks here my opinion would be different.

I am having difficulty understanding the logic behind purchasing 30-40k worth of stocks and selling the next day though. I am guessing most people do it to get 1% to 1.5% cashback, but is it really worth it? I wouldn't be surprised if Loyal3 eventually notices the activity and maybe shutdown your account and ban you from signing up again.

[arebelspy]

I am having difficulty understanding the logic behind purchasing 30-40k worth of stocks and selling the next day though. I am guessing most people do it to get 1% to 1.5% cashback, but is it really worth it? I wouldn't be surprised if Loyal3 eventually notices the activity and maybe shutdown your account and ban you from signing up again.

Yes, that's the logic, and yes, L3 has sent some warning emails.  These things have been explained/discussed in this thread I suggest you read if you aren't understanding or missed that.  :)

[KingCoin]

I really wonder if it's the same day/same week selling after buying on a credit card that raises their ire.

Yes, not only does this just cost them money, it's completely antithetical to their raison d'être.  If you watch their media interviews, they pitch themselves as a broker who sells to investors who are loyal to the corporate product and will be long-term holders of their stock. That's their selling point to companies who they hope will make them part of the IPO deal team in addition to or at the exclusion of larger banks. If everyone is buying and flipping, then they're just another bucket-shop broker.

I suppose they could mandate a lock-up period, but that would be both scary and questionably legal.

[dragoncar]

I really wonder if it's the same day/same week selling after buying on a credit card that raises their ire.

Yes, not only does this just cost them money, it's completely antithetical to their raison d'être.  If you watch their media interviews, they pitch themselves as a broker who sells to investors who are loyal to the corporate product and will be long-term holders of their stock. That's their selling point to companies who they hope will make them part of the IPO deal team in addition or at the exclusion of larger banks. If everyone is buying and flipping, then they're just another bucket-shop broker.

I suppose they could mandate a lock-up period, but that would be both scary and questionably legal.

Not a lockup period per se, but many "commission free" ETFs and mutual funds have a 90 day sales period in which you have to pony up the commission.

[cowstash]

Not a lockup period per se, but many "commission free" ETFs and mutual funds have a 90 day sales period in which you have to pony up the commission.

That's a good point, but I'd imagine that such terms would scare people away from what is currently a pretty straight-forward process (with its delay in trading flaws).

I see two likely outcomes if they want to crack down on the heavy churners: The easier option is that they simply they lower the credit card max to something like $50/stock per month, but this could turn off a portion of their "good" customer base. The more complicated option would be to more aggressively shut down the flippers and lower the buy/sell thresholds that trigger that. Hell, if I worked there and saw a handful of people with $36k in on credit cards and $36k out to checking accounts in the same month, I'd flag them in the system too, it's a no-brainer. With any luck, as long as we stay off their radar and don't push the envelope, it can be a sustainable option.

[wholeinone04]

I just wrote a post on Loyal3, in short: bad idea if you're trying to MS.

http://yourpfpro.com/using-credit-card-buy-fee-free-stocks-loyal3/

There’s only one situation in which I think it might make sense for someone to invest their money using this strategy. Let’s say you normally stay away from credit cards but you see an offer like the Barclay Arrival Card that pays you 40,000 points($400) for spending $3,000 in 90 days. If you go ahead and buy $3,000 worth of shares from Loyal3, you’d get 6,000 points(for spending $3,000) plus 40,000 points for meeting the spend requirements. Once you redeem those points you’d get a 10% bonus bringing your total to 50,400 points or $504.

That means that you can withstand a $504 loss in your trading account and still come out ahead. 504/3,000 = 17%. I think it’s a very good bet that a single stock will not go down more than 17% in 1-3 days. But if you’re worried, you could diversify among 5-10 stocks and then there’s probably a 99% chance you would come out on top.

But the only caveat to this strategy is that if you have other means of spending the money that have less risk you could employ those methods and never put your $500 at risk. That’s the case for me since I spend around $1,000 a month plus I use Amazon Payments, Vanilla Reloads and Bluebird to meet spending requirements. So unfortunately this strategy won’t really work for me.

[KingCoin]

But the only caveat to this strategy is that if you have other means of spending the money that have less risk you could employ those methods and never put your $500 at risk. That’s the case for me since I spend around $1,000 a month plus I use Amazon Payments, Vanilla Reloads and Bluebird to meet spending requirements. So unfortunately this strategy won’t really work for me.

It's not necessarily an either/or. You could of course do both. Earlier in this thread I walked through the math which made clear that the risk/reward is extremely compelling (you'd have to be almost pathologically risk averse not take the bet).

[cowstash]

I just wrote a post on Loyal3, in short: bad idea if you're trying to MS.

http://yourpfpro.com/using-credit-card-buy-fee-free-stocks-loyal3/

There’s only one situation in which I think it might make sense for someone to invest their money using this strategy. Let’s say you normally stay away from credit cards but you see an offer like the Barclay Arrival Card that pays you 40,000 points($400) for spending $3,000 in 90 days. If you go ahead and buy $3,000 worth of shares from Loyal3, you’d get 6,000 points(for spending $3,000) plus 40,000 points for meeting the spend requirements. Once you redeem those points you’d get a 10% bonus bringing your total to 50,400 points or $504.

That means that you can withstand a $504 loss in your trading account and still come out ahead. 504/3,000 = 17%. I think it’s a very good bet that a single stock will not go down more than 17% in 1-3 days. But if you’re worried, you could diversify among 5-10 stocks and then there’s probably a 99% chance you would come out on top.

This is exactly what I did with my new Barclay Card, and came out $510 ahead (noting that this particular award has to be spent on statement credits for travel charges, which I do a lot of).

However, based on my experience, it's about a 2 hour exposure window, not 1-3 days -- it's roughly from 12-12:30 PM EDT two business days after you put in the order (when it's bought) until 2:30 PM the same day when it can be sold (note: you have to put in the sell order before 2 PM EDT the same day, which then sells around 2:30). E.g. I put in orders for $2000 for Apple and $2000 for BRK.B today. They will be bought at whatever their prices are midday on Wednesday, and I'd have the option to sell them about two hours later. Something crazy would have to go on during that window for either stock to drop 17%, and I suppose that's the gamble (but hopefully you'd see a sharp drop happen before you put in the sell order at 1:55 PM and maybe wait for a few days for things to correct). I don't plan to churn again now that I earned my award for the card, and want to hold these stocks for a while and want to avoid being blackballed from their service. I may churn once every few months with a different Visa or Mastercard award card though in the future, as it's a nice option.

[wholeinone04]

This is exactly what I did with my new Barclay Card, and came out $510 ahead (noting that this particular award has to be spent on statement credits for travel charges, which I do a lot of).

However, based on my experience, it's about a 2 hour exposure window, not 1-3 days -- it's roughly from 12-12:30 PM EDT two business days after you put in the order (when it's bought) until 2:30 PM the same day when it can be sold (note: you have to put in the sell order before 2 PM EDT the same day, which then sells around 2:30). E.g. I put in orders for $2000 for Apple and $2000 for BRK.B today. They will be bought at whatever their prices are midday on Wednesday, and I'd have the option to sell them about two hours later. Something crazy would have to go on during that window for either stock to drop 17%, and I suppose that's the gamble (but hopefully you'd see a sharp drop happen before you put in the sell order at 1:55 PM and maybe wait for a few days for things to correct). I don't plan to churn again now that I earned my award for the card, and want to hold these stocks for a while and want to avoid being blackballed from their service. I may churn once every few months with a different Visa or Mastercard award card though in the future, as it's a nice option.
[/quote]

Interesting, so you're saying it does take 2-3 days to buy like I said, but then you can actually sell within a couple hours of then.  So there's no 1-3 waiting day period with selling like there is with buying.  If that's the case, I think the odds are pretty good that you could do this a bunch of times and won't see as much risk.

[DK]

follow

[innerscorecard]

It's worked out very well for me so far. Since I live abroad, most conventional MS is closed to me, and Loyal3 has been very painless so far. I've even made some incidental capital gains on all my transactions so far, which is nice.

[arebelspy]

It's worked out very well for me so far. Since I live abroad, most conventional MS is closed to me, and Loyal3 has been very painless so far. I've even made some incidental capital gains on all my transactions so far, which is nice.

What level of churn have you done?

[innerscorecard]

It hasn't been enormous.

I did my first ever AOR with:

CSP - ~450 signup bonus (with additional cardholder)
Arrival ~400 signup bonus assuming points are used for statement credit and not travel
BoA Cash Rewards ~100 signup bonus
Citi Dividend ~100 signup bonus
IHG Rewards Select ~60,000 points signup bonus (and free hotel stay every year), not sure if they can be used for statement credit

All of these at least have the annual fee waived for the first year, and the cards with the lower rewards tend to have no annual fee at all. There are also varying amounts for cashback on these cards, which provides an even better margin of safety.

My goal is simply to generate cash. I have student loans still, and I don't travel much, so a minimal amount of travel rewards will be sufficient for me. In other words, I value $1 in cash that I can use to pay off student loans much higher than I'd value even a larger amount of travel rewards.

It is really too bad that Discover and AmEx don't work on Loyal3, or that I don't currently have a business to get the business cards with, or the profits could have been even greater.

So far I have churned about $9000, and the signup bonus threshold on all but one card has been satisfied. So small potatoes compared to some others in this thread. But the rewards really do diminish heavily after you no longer have the extra cushion of signup bonuses, but only have the 1.5-2% to cover yourself in case of any downside. Not only that, but you run a far increased risk at higher amounts of getting shut down by management.

I think another benefit is that this activity satisfies the itch to trade and stock pick, which some investors do with 5% of funny money or even dangerously with more. If churning operations like this satisfy this urge, then you will be more psychologically able to handle simply indexing with your entire portfolio.