Chapter 58 Maximum Leverage
The next morning, at dawn.
A light rain the night before left dew clinging to the leaves outside the dormitory building, refracting scattered patches of light in the morning sun.
“Buzz buzz—”
The Nokia phone placed on the desk below vibrated twice. Since the bed and desk were integrated, Zhang Yang, lying on the upper bunk, clearly felt the vibrations.
Knowing there was an important matter to attend to today, Zhang Yang didn’t linger in bed. He rarely did, unless utterly exhausted.
After a brief moment of gathering himself, he got up and descended the stairs.
At the desk on the lower bunk, Zhang Yang picked up his phone to check the messages.
He had expected a message from Tao Yu’ang, but instead, it was a payment notification:
[Dear customer, your Construction Bank account ending in 2389 received a transfer of 40,000 RMB (forty thousand yuan exactly) at 8:12 a.m. on April 23, 2009. Available balance: 40,024 RMB. Note: Labor fee for operating the HuaXin Securities simulation trading competition.]
“That kid Lai Weijie is pretty trustworthy after all,” Zhang Yang murmured as he read the bank message.
With the 40,000 RMB payment received, plus the funds already in his securities account, his total capital had now reached 230,000 RMB.
It was worth noting that because he had purchased a one-day treasury bond reverse repo yesterday, the 88,000 RMB of idle funds in his securities account could not be withdrawn immediately. He would have to wait until Friday to transfer it to his bank card.
As for the roughly 100,000 RMB invested in ST Zhongfang Machinery, Yangtze Power, and Huaguo Shenhua, those could be sold at any time and transferred out.
Out of courtesy, Zhang Yang sent a QQ message to Lai Weijie to confirm the funds had arrived.
Then he turned off his phone screen, went to the balcony to freshen up, and afterwards headed to the cafeteria for breakfast.
This time, Zhang Yang didn’t bring his laptop, as Tao Yu’ang had said he would come to pick him up in the morning. If all went as planned, Tao would come straight after clocking in at HuaXin Securities.
…
Sure enough, near nine o’clock, Zhang Yang’s phone rang.
He didn’t rush to answer but first stepped out of the dormitory, closed the door behind him, and then pressed the call button.
“Hello, has Brother Tao arrived?”
“I’m downstairs at your dorm building. Just come down and you’ll see me.”
“On my way.”
Zhang Yang quickened his pace.
It didn’t take long to descend from the third to the first floor. Soon, he stepped outside and spotted Tao Yu’ang’s silver BMW M3 sports car.
Approaching the passenger side, Zhang Yang expertly opened the door, got in, and buckled his seatbelt.
“Thanks for helping me out this time, Brother Tao.”
“No need to be polite. We’re brothers.”
Tao Yu’ang smiled.
If it had been someone else, he might have gone just for the profit, but with Zhang Yang, he wanted to keep him safe.
After all, financing companies nowadays were a mixed bag, full of traps. One wrong step and the principal could be outright embezzled.
The BMW M3 turned around, and Tao Yu’ang gently pressed the accelerator, first crawling away from the student dorm area.
Once clear of the Finance University, the beast of a car unleashed its true speed, delivering an intense surge of acceleration and flaunting its razor-sharp, sleek exterior, drawing the attention of numerous passersby.
Among the BBA brands, BMW was undoubtedly the most eye-catching and alluring to young people, especially the M series, which many men regarded as an untouchable “goddess.”
…
“I checked for you last night. Currently, the going annual interest rate for margin financing is around 20%, basically no different from a high-interest loan. I have a bit of a connection with a manager at Hongyue Investment, and he said over the phone he could cut it down to 12%. You need to think carefully,” Tao Yu’ang reminded again.
At 12% annual interest, if Zhang Yang wanted to finance 800,000 RMB to reach a total of 1,000,000 RMB, that meant paying interest on the borrowed 800,000 RMB at 12% annually, which breaks down to about 0.0329% per day, totaling 263.01 RMB daily.
That meant, with five times leverage, Zhang Yang would have to pay 263.01 RMB to the financing company every day, regardless of whether he made any trades.
“Are there any waivers for non-trading days?”
Zhang Yang inquired.
His question made clear his intention: to continue leveraging.
“I’ve heard of daily margin financing. When we get there, I’ll ask around for you,” Tao Yu’ang said, eyes fixed on the road ahead.
…
Hangzhou City, Jianggan District.
Qianjiang International Times Plaza, Building 2.
This nine-story office building was developed by Hongyue Real Estate Development Co., Ltd. The lower eight floors were all leased out, with only the ninth floor reserved for their own financing company.
The real boss behind Hongyue Investment was Liu Hua, who first made his fortune in real estate, later expanding into mining and hotel businesses.
After the stock market bottomed out in October 2008, the demand for margin financing surged. Several drained financing company owners approached Liu Hua, seeking loans to re-lend to clients needing leveraged financing.
Who was Liu Hua?
He was the executive president of the Qingyuan Chamber of Commerce.
His business acumen and keen nose for money quickly led him to realize he could run his own market financing business.
Within just six months, Hongyue Investment became the leading financing company in the Yangtze River Delta, expanding westward all the way to southern Yunnan.
Near noon, right after Tao Yu’ang’s call, Zhang Xiaolong, a business manager at Hongyue Investment, waited early in the corridor by the elevator.
“Ding—”
The elevator doors opened.
“Brother Tao, good to see you,” Zhang Xiaolong greeted warmly.
“It’s almost noon. Hope I’m not interrupting your lunch, Brother Zhang,” Tao Yu’ang smiled.
On the surface, their relationship seemed cordial, but only they knew it was all just for show.
“No, not at all. And this must be the brother looking for financing?” Zhang Xiaolong looked at Zhang Yang.
“Yes, he’s from our Finance University as well. Give him a fellow alumnus discount, just as a favor to me,” Tao Yu’ang responded first.
Zhang Yang extended his hand, feigning surprise, “You’re a senior? I’m Zhang Yang, enrolled in 2005.”
“I’m four years ahead of you, class of 2001. Call me Brother Zhang, Dragon Brother, or Manager Zhang,” Zhang Xiaolong said, shaking his hand.
He then invited them, “Since we’re all alumni, consider us family. Let’s head to my office to talk.”
“Lead the way.”
The three moved toward Zhang Xiaolong’s office.
…
The office was small, about twenty square meters. Though compact, it was well-equipped and offered a window overlooking the crowd gathering in the plaza below.
The manager was very professional, pulling out pen and paper, he asked, “Junior Brother Zhang, how much principal do you have, and how much leverage do you want?”
“What’s the maximum leverage available?” Zhang Yang countered.
His question left both Tao Yu’ang and Zhang Xiaolong stunned—it was the first time they’d met someone who asked that way.
Was it confidence?
Or was he just gambling?
Zhang Xiaolong, worldly and experienced, had seen many who wanted high leverage hoping to strike it rich, or simply gamblers.
Soon he regained composure, glanced at Tao Yu’ang, then looked back at Zhang Yang.
“We need to base the maximum leverage on your principal. So, Junior Brother Zhang, what is your principal?”
“200,000 RMB.”
Zhang Yang answered without hesitation.
“With 200,000 RMB, we can offer you up to five times leverage—that means your 200,000 acts as margin, and we provide 800,000, totaling 1,000,000 RMB for you to operate.”
Zhang Xiaolong added, “I must also remind you, once your 200,000 principal loses 95%, we may have to enforce a forced liquidation.”
“Understood.”
Zhang Yang nodded.
Seeing his familiarity with the terms, Zhang Xiaolong assumed he had done his homework and continued, “So, how much leverage do you want? If you’re a newbie, I’d recommend—”
“Max it out.”
Zhang Yang interrupted calmly.
“!!!”
“!!!”
Tao Yu’ang and Zhang Xiaolong were momentarily speechless.
Right off the bat, max leverage?
Isn’t that reckless?
Zhang Xiaolong looked at Tao Yu’ang, as if asking: Is this guy trying to gamble everything and disappear if he loses?
Tao Yu’ang was even more flustered. He had expected Zhang Yang to maybe go for two or three times leverage, but never had he imagined five times.
With 200,000 RMB at five times leverage, even at the lowest financing interest rate, he would be paying several hundred yuan daily in fixed costs.
“This is bad. Could Zhang Yang be going through a breakup phase, feeling reckless?” Tao Yu’ang wondered silently.