CFD investing

itsmejasong · 17 April 2009

Hi guys just wanted your opinion on a possible investing strategy I have.

Basically I have a bit of cash about 15 grand, going to take a personal loan of 35grand to make a total of 50 grand.

With this equity I'm thinking of leavering it up using cfds to buy blue chip companies (WPL, BHP) at a margin of 10%.

There is alot of risk with cfds and to manage this I will have several buy packet (approx $5000 / packet, unleveraged ) and buy it over a minimum of 3 months spreading the risk. To hard to pick the bottom lol

I will also not use to total 50grand only 35 grand, and use the 15 grand for stop losses and buffers, margin calls etc. Plan to hold the shares for about a year or so as long as I can meet both interest repayments, i.e. personal loan & cfd interest. I have a stable job and wont loose it (government contracts) so thats not a problem.

nomore4s · 18 April 2009

You're obviously a newbie so I will take it easy on you.

Are you f-ing crazy?

While I think now is the time to start buying small parcels of dividend paying quality stocks, now it not the time to be leveraged to the eyeballs.

Firstly a couple of problems.

CFDs are very expensive because as the stock prices goes up in value so does the interest charge.

Do you understand what makes CFDs risky? It is the excessive leverage, and you are compounding this by using borrowed money.

There is a very real risk that the market will either trade sideways or continue to trend down for the next year - meaning you could end up paying a sh!tload of interest for sweet FA return or even a loss.

I'm not allowed to offer any financial advice but imo there are better ways for someone in your position to invest. Have a read through the Storm thread in this link to get an idea of what happens when excessive leverage goes wrong.

Sean K · 18 April 2009

Could take that loaned money to the casino too nomore4s! Or the track. Just keep putting in bits at a time to spread the risk.

jason, I think you're starting a bit aggressivley. Could be an expensive lesson.

The fact you're planning on keeping 15 grand for stop losses? and margin calls, is a bit troubling.

itsmejasong · 18 April 2009

Yeah It is a bit aggresive,I do see what u guys are saying what does you guys suggest I want to make the most of this recession.

So_Cynical · 18 April 2009

Just the thread title "CFD investing" LOL

Dude just a little conservatism please...with 15K u can make some reasonable
money un-leveraged...and if u cant do that (the basics)...CFD's would wipe u
out in no time.

Just pick 3 stocks right now, and lets see how u go real time over the next week.

nomore4s · 18 April 2009

itsmejasong said:
Yeah It is a bit aggresive,I do see what u guys are saying what does you guys suggest I want to make the most of this recession.

Firstly don't rush - there will always be opportunities to make money. Not losing money should be your first goal. Don't be lured into thinking there is easy money to be made in the markets - it is not easy!

With the sort of leverage you are talking about you will only need one position to move against you and your $15k buffer will be gone. Leverage is two edged, it can work for you but it can also destroy you.

Read this thread for starters.

Then read this thread to see how nearly everyone loses money in the first year - even after making money to start with. Yes even me:

Sean K · 18 April 2009

nomore4s said:
Firstly don't rush - there will always be opportunities to make money. Not losing money should be your first goal.

Agree. Don't rush! But, I think losing money can be a good lesson though. Just not too much!!! It's like horse riding. You're not a rider until you've fallen off 100 times. Not sure what that equates to in $$, but you probably need to experiences loses, through mistakes, or black swans, to see the complete picture. Falling off, surviving, learning, and getting back on, will make you a much better investor later. Just make sure you survive!!!

skc · 18 April 2009

itsmejasong said:
Hi guys just wanted your opinion on a possible investing strategy I have.

Basically I have a bit of cash about 15 grand, going to take a personal loan of 35grand to make a total of 50 grand.

With this equity I'm thinking of leavering it up using cfds to buy blue chip companies (WPL, BHP) at a margin of 10%.

There is alot of risk with cfds and to manage this I will have several buy packet (approx $5000 / packet, unleveraged ) and buy it over a minimum of 3 months spreading the risk. To hard to pick the bottom lol

I will also not use to total 50grand only 35 grand, and use the 15 grand for stop losses and buffers, margin calls etc. Plan to hold the shares for about a year or so as long as I can meet both interest repayments, i.e. personal loan & cfd interest. I have a stable job and wont loose it (government contracts) so thats not a problem.

With $15k + $20K personal loan, dump into CFD at 10% margin means you will control total shares of $350k. Annual CFD interest on $350K at say 6% is ~$21K. (More than your total outlay already!) Annual interest on personal loan on $35K at say 10% is another $3.5K.

With control of $350K worth of shares your $15K buffer (+ you initial 10% margin of $35K) can sustain a drop in value of ~$50K, or under 15%.

In summary:

If your basket of shares fall by more than 15%, you are wiped out and left to repay a $35K loan. You have also paid whatever interest you have paid so far. This can happen over the next two weeks, or this can happen at the final 2 weeks of your investment timeframe.

If your basket of shares do nothing you have paid a ~$25K interest bill, offset by may be $15-20K in dividends depending on the stocks you bought.

If your basket of shares go up by 15%, you are up around $45K.

No one knows which one will play out, but any of the three situations are all probable, not just possible. That's why other posters call this a gamble rather than an investment.

So do reconsider your strategy and best of luck.

ThingyMajiggy · 18 April 2009

If you want to do it, do it. Everyone is against it, so why not have a go? Just be careful, if you lose it, you will have learn't your lesson, if not. Well Done.

Sean K · 18 April 2009

ThingyMajiggy said:
If you want to do it, do it. Everyone is against it, so why not have a go? Just be careful, if you lose it, you will have learn't your lesson, if not. Well Done.

Great advice! Jump off that roof with the sheet as a parachute! Sail away! Whoohooo!

nomore4s · 18 April 2009

ThingyMajiggy said:
Everyone is against it, so why not have a go?

lol, great advice. Everyone is against it so just do it, doing it because everyone else is against it is just plain stupid. If it all blows up in his face it could leave him in a deep hole that will take awhile to get out of.

With this strategy the op could lose his $15k and end up in $35k debt or worse, he may also make $50k but I know which one I think will happen especially in the current market. The interest charges from the CFDs alone will eat into the profit if it does come off. Risking $50k to make $50k is a poor risk reward imo.

There are better strategies around with less risk.

Cartman · 18 April 2009

skc said:
With $15k + $20K personal loan, dump into CFD at 10% margin means you will control total shares of $350k. Annual CFD interest on $350K at say 6% is ~$21K. (More than your total outlay already!) Annual interest on personal loan on $35K at say 10% is another $3.5K.

With control of $350K worth of shares your $15K buffer (+ you initial 10% margin of $35K) can sustain a drop in value of ~$50K, or under 15%.

In summary:

If your basket of shares fall by more than 15%, you are wiped out and left to repay a $35K loan. You have also paid whatever interest you have paid so far. This can happen over the next two weeks, or this can happen at the final 2 weeks of your investment timeframe.

If your basket of shares do nothing you have paid a ~$25K interest bill, offset by may be $15-20K in dividends depending on the stocks you bought.

If your basket of shares go up by 15%, you are up around $45K.

No one knows which one will play out, but any of the three situations are all probable, not just possible. That's why other posters call this a gamble rather than an investment.

So do reconsider your strategy and best of luck.

Wise post !!

"Itsmejasong" (funny name -----

seriously, your 'concept' is fine --- but not with leveraged cash --- that may get you into hot water --- you also might get lucky !!

with 15 grand ------ id learn to trade Forex --- split your 15 grand into 1 grand lots ---- try and double one of them three times consecutively --- that will give you 8 grand --------- so you get 8 chances to break even --- do it in 6 goes and you make 2 grand --- do it in 1 and you are a genius !!

power of compounding (not leverage)is your best friend if you have limited capital ----- of course it wont help if you dont learn to trade efficiently ---- thats what id concentrate on at this point

Sean K · 18 April 2009

Cartman said:
with 15 grand ------ id learn to trade Forex --- split your 15 grand into 1 grand lots

What? From nothing to trading Forex?

ThingyMajiggy · 18 April 2009

nomore4s said:
lol, great advice. Everyone is against it so just do it, doing it because everyone else is against it is just plain stupid. If it all blows up in his face it could leave him in a deep hole that will take awhile to get out of.

With this strategy the op could lose his $15k and end up in $35k debt or worse, he may also make $50k but I know which one I think will happen especially in the current market. The interest charges from the CFDs alone will eat into the profit if it does come off. Risking $50k to make $50k is a poor risk reward imo.

There are better strategies around with less risk.

Wowsers! Wrong time of the month or something? If he wants to do it, hes going to do it anyway. Since when is that advice anyway, its a question. I think its a crazy thing to do, but like it has already been said, losing money is a good lesson to learn, just not all of your money, so why not get lesson 1 out the way first?

Ya never know, he might be some super genius and be able to do it, then all you lot would be bowing down kissing his e-toes.

Just playin, no need to get your knickers in too many more knots.

itsmejasong · 18 April 2009

I am reconsidering...I have made some good returns using cfds, but in this current volatility this stategy would be foolish.

Would be nice to know how you guys are planning your portolios for the next 12 months??
if your using leverage what type and how much?
thanks for the info guys...Im far from a pro but hopefully over time ill get there

beamstas · 18 April 2009

Wow.. I think my eyes just popped out of my head

Firstly.. CFD and INVESTING doesn't go in the same sentence

Also.. am i getting this right??
You are LEVEREGAGING YOUR OWN MONEY WITH A PERSONAL LOAN AND LEVERAGING THIS MONEY WITH CFDS

Thats DOUBLE leverage LOL

Heres my advice.

Stay out of the market.

You obviously have no idea about risk management, and i'd really hate to see someone not only loose all there own capital but possibly more. You do realise that you could lose the WHOLE 50K plus MORE (because of slippage and gapping over stops)

You could potentially go from having 15k of your own money to losing the 35k loan plus more putting you in debt $40,000+ dollars.

I'll leave you with some advice.. Profitable trading is both slow and boring

If you want to double your money overnight, go to the casino and put it all on red. At least that way you have a 50% chance of succeeding

Brad

PS. I hope you don't end up like my signature

So_Cynical · 18 April 2009

beamstas said:
If you want to double your money overnight, go to the casino and put it all on red. At least that way you have a 50% chance of succeeding

Brad

Actually Brad its a little less than 50% - in euro roulette (one 0) there's a house edge
of 2.70% and with American roulette (two 0's) the edge is 5.26%, of course im talking
mathematical odds of red winning, not the payout.

http://en.wikipedia.org/wiki/Roulette

Cartman · 18 April 2009

kennas said:
What? From nothing to trading Forex?

I dont see your problem with that suggestion Kennas ?? ----

My first statement was "learn to trade Forex" ----- thats why the world created Sims ----- NB i didnt say risk your money first

after he "learns" to trade FX , the lad can trade risking a small % of his capital without all the crazy leverage he is considering ---

do you see any better options --- other than not trading at all ??

ps if a trader cant learn to trade off a FX chart, then forget about trying any other kind of chart ---- its T/A at its purest imo

pps --- my last statement should be reinforced as well --- "concentrate on learning to trade" at this stage -------- you may have missed the point of my post Kennas ??

beamstas · 18 April 2009

So_Cynical said:
Actually Brad its a little less than 50% - in euro roulette (one 0) there's a house edge
of 2.70% and with American roulette (two 0's) the edge is 5.26%, of course im talking
mathematical odds of red winning, not the payout.

http://en.wikipedia.org/wiki/Roulette

Bloody hell im never right

Well lets put it like this

100%-5.26% = 94.74% / 2 = 47.37% chance of winning

47.37% chance is still better than what he has right now

Brad

Sean K · 18 April 2009

Cartman said:
you may have missed the point of my post Kennas ??

Yes, probably. The guy was wanting to invest in blue chip fundamental stocks, so I'm sure it's fine for him to start intraday trading forex. Yes, missed your point. Sorry.

CFD investing

itsmejasong

nomore4s

Commonsense isn't that common

Sean K

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Sean K

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ThingyMajiggy

itsmejasong

beamstas

So_Cynical

The Contrarian Averager

Cartman

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