Holding CFD' s LONG TERM

[Ingot54]

Not much said on holding CFD trades over a long term, as most discussion is bent towards catching the short, fast moves.

What seems to have escaped traders is that a golden opportunity to make serious money is right under our noses. :idea:

The most common argument against holding a CFD position over the longer term, is the interest cost of holding.

My response: Rubbish!

Consider a position of 1000 BHP CFD's worth, say $30,000 grossed-up. You will pay cash rate plus 2% to 2.5%. Assume this is 8% pa which on $30k = $2400 pa = $6.67/day for a 360-day-year.

To get back your $6.67/day and break even, BHP would need to rise by less than ONE CENT PER DAY. (667 cents/1000).

Not difficult to find a strongly trending stock to do much better than that.

Over the past few months, BHP has risen by 50% notwithstanding the current market correction. This is one of those set-and-forget types of trades. CFD providers make their money by churning, and traders play right into their hands. The glamourising of active trading is coercive, and bordering on deception, in my view.

When you consider the reasons for trading, doesn't being glued to the screen all day, stressfully sweating it out on the action actually mitigate against "having a life?"

Do the maths. Get a life.

 

[Rainmaker]

agree entirely.

i have had a fantastic couple of years holding trending ftse 350 stocks through my e-trade cfd account. my long positions have included the miners, bae, cairn, rolls royce, ashtead, plus a few that i have been in and out of. i've had a few of my trailing stops hit last week, but will look to re-enter if the uptrends resume.

 

[Ingot54]

That's the KEYword, Rainmaker - "TREND".

A lot of traders have not discovered the wealth to be collected by riding an established trend, harvesting a big chunk here, and a big chunk there - all at leveraged rates! :>))

 

[Rainmaker]

AND the odds are far more in your favour. the probability is always that trends persist rather than turn. you just need a risk management strategy for when they do turn (and for possible re-entry).

it is also far less stressful than trying to duck and dive. i would hate to sit in front of a price screen all day!

 

[ekiwi]

AND the odds are far more in your favour. the probability is always that trends persist rather than turn. you just need a risk management strategy for when they do turn (and for possible re-entry).

it is also far less stressful than trying to duck and dive. i would hate to sit in front of a price screen all day!

You guys are talking my language! Posted elsewhere but seems like you guys could help answer some rookie questions

For about 12 months been playing around with my smsf. Mainly investing in shares in the US tech sector. Mixed success but it's for the long haul so it's all good.
Now feeling confident enough to make what i think are a few carefully thought out trades using my own money - or rather CFD's.

Signed up with IG and got off to a reasonable start this week, playing around with Apple.
In fact like BHP is extremely liquid so this will be my main vehicle. Been a long time holder and am extremely confident of their prospects - esp. as we head into the 4th qtr which is traditionally the big one for them.

Bought 500 shares at $73.31 exited at $74.31. $500 US. Happy start.
Then bought 1500 shares at $74.50. Pleased as was almost the bottom on the day and yesterday it rocket up in the hour before lunch. Should've pulled the trigger and sold at $76 for a nice $2250 (or nearly $3k Aus) but hesitated and watched it trickle back down down down to $74.83. Still holding as it may take a day or two but with Apple forecast to go to between $90-100 US by mid Jan I'm not sweating it.

My question relates to how I can devise an entry and exit strategy. It's all a bit seat of the pants.
I'm not a graph guy -I know what way is up and what is down but that's about it - and this hasn't mattered till now becuase with Super it was always buying to hold, but if nothing else I do appreciate you need a solid plan to be successful over time.

I know it'll take discipline and have told myself 50c down on an AAPL trade is the exit point, but how to know how far to let it run up, what signs to look for on when or if to get in, etc?
Also IG's tools are basic to say the least (no trailing Stops) so maybe I should be looking for an alternative?

Any suggestions for a strategy to hold and skim the cream, while minimizing losses would be much appreciated, as would any other guidance.

Thanks everyone.

e-kiwi.

 

[timsk]

A lot of traders have not discovered the wealth to be collected by riding an established trend, harvesting a big chunk here, and a big chunk there - all at leveraged rates! :>))

Those leveraged rates can bite you where it hurts unless you're very careful. If you're swing/position trading a leveraged product and you get it wrong, you can wake up one morning to find yourself in a quagmire of brown sticky stuff! Just ask anyone who was long on one of the online gaming stocks at the start of the week. This is less of a problem for day traders sitting in front of their screens with their fingers on the pulse of market action. I'n not saying that good profits can't be made using CFD's in the longer term - I'm sure they can - but the leveraged nature of the product amplifies the risks as well as the rewards.
Tim.

 

[Mikesev]

Those leveraged rates can bite you where it hurts unless you're very careful. If you're swing/position trading a leveraged product and you get it wrong, you can wake up one morning to find yourself in a quagmire of brown sticky stuff! Just ask anyone who was long on one of the online gaming stocks at the start of the week. This is less of a problem for day traders sitting in front of their screens with their fingers on the pulse of market action. I'n not saying that good profits can't be made using CFD's in the longer term - I'm sure they can - but the leveraged nature of the product amplifies the risks as well as the rewards.
Tim.

Agreed, I'm quite intrigued with CFDs, although I've not traded any yet as I'm still working on getting my basic trading system in order before I start gearing up.

But with guaranteed stop losses being available how do I've been trying to work out how best to manage the risk without being overly cautious and being sequentially wiped by tiny initial movements against my position. What do people think about this?

 

[de123]

Holding CFd-s long term is a brilant idea,.....but we should focus on bearish to,...so the interests will not kill us....we will benefit them,...just imagine,...the stocks that has been a looser,...and has a potential of 30-40 drop,...plus interest per day,....to nice to be true,....when i am gona make a portfolio it would be 70 % short and 30% long....

 

[daytradingUK]

I have done some short position CFDs over a month long period, the interest is not fantastic but given the current economic climate if you find a nice stock that is volatile you can make a really good profit on your investment, a 5% drop is 50% increase on your investment. I like mining stocks for this purpose, although of late they have been extremely erratic.

Personally I also believe you need to have a 50% or 25% reserve in case the price severely moves against you, otherwise all your profit may disappear the first time it goes up heavily against you.

A good pair of stocks i have done this with is AAL and VED, short them and get out when have made £1000. So far has worked fine the dozen or so times I have done it. Another good long-term short was HBOS when it hit 1109, shorted it down to 1060ish.

However you do need nerves as I have spoken to people who bottled it at a loss and then a few days later would have been quids in.

 

[miss trader]

I was going to use IGs platform as I keep hearing good things about it. A friend told me they didn't get much of a personal service there mind you.

 

[aspex]

I like the concept of having a long and a short that are balanced to negate overall market trends.
The question is what to choose.
In hindsight just about any property stock that was headed for a REIT in the new year would have been a good long bet. Shorts would have been those stagnant ones like BP.
So for early 2007 what suggestions???

 

[lucas_king]

The flexibility of CFDs means they can be interesting for short, medium and long-term traders/investors, so long as they understand and use the product sensibly. I’ve seen and done it over all time frames. It’s depends on what is appropriate. It can be good for moves of just a day or two, a week, a month and a year, with gains from the leverage hopefully offsetting the financing costs. So long as you aim to make gains in excess of the costs incurred (trading and financing), you could make a profit. If your financing costs 8% a year, you probably need to be hoping for profits equivalent to a multiple of that (2x, 3x?). You’ll win some and lose some, so you need the few winners to offset the several likely losers. It’s about risk and reward, with the latter needing to be attractive versus the former. Breaking even is one thing, but doing it consistently and treading water is just hard work (and stress) for nothing. And getting your entry and exit levels and breathing room for stops right can be just as hard over the long-term as it is for the short-term. Good luck with BHP whatever time frame you decide to trade over.