Hi everyone,
I am a complete beginner and this is my first post which I hope will throw up some interesting ideas.
I have a substantial defined contribution pension pot and a somewhat smaller portfolio of ISAs.
The current mix of investments by value is listed at the end of this post although the Scottish Life Managed fund is by far the largest portion amounting to 50% of the total value.
I have 10 years to go to retirement (if I can afford it) and do not want to switch my funds into lower performing, safer ivestments as retirement approaches.
Instead I thought that I could use spreadbetting to protect (hedge) these investments from large falls in the market.
The fist big question is: Do people think that this is a good idea? If not are there other insurances that I can take out?
If this is viable, then what trading plan do I need to put in to place?
Which type of trading?
I hold down a full time job so day trading is out, I'd have to be a swing trader or position trader. The latter sounds the best choice at the moment as I would only be able to place trades while the market is closed in the evenings.
Which Index?
If I am to hedge against existing investments I need to take positions in an index that tracks the underlying investment. I have tested some of the UK ISA funds and find that they track the FTSE250 better than the FTSE100. I need an index that tracks the Scottish Life Managed fund but at the moment I don't have historical data for that fund to be able to do that.
How much exposure?
If I want a perfect hedge to protect say £100K's worth of underlying assets then I have calculated that I need to sell £100K divided by the current value of the selected index. So for example 100K/FTSE100 @ 6100 = £16.39 per point. Have I
got that right?
How do I select my entry and exit points?
Well, I guess this is the main dilemma facing all of us. In my case there is a trade off to be made between how much growth I am prepared to sacrifice (in the underlying assets) if the market rises before I exit the position. My current
thinking is that I should set a stop 300 points (5%) above my entry point. Any smaller and I risk being stopped out by normal daily market movements.
Assuming that I have timed my entry correctly and I capture a market fall I still need to determine my exit point. The lowest risk option is not to exit at all but this could mean giving up potentially big gains. Any advice gratefully recieved.
How much do I need in my trading account?
This is more difficult to answer as it is strategy dependant. Would I be right in assuming that in the above example I would need at least the stop loss (300 points) x £16.39 per point = £4917? I know that traders are only supposed to
risk a small percentage of their bank on each trade but does that logic apply to hedging too? Clearly I need more than £4917 otherwise I could be wiped out in the first trade.
That is probably enough for now. Over to you guys. What would you do?
Kind Regards,
Tim.
Scottish Life Managed fund (pension)
NFU Managed fund (pension)
Scottish Widows BLK UK Small Companies Fund (pension)
Scottish Widows Aberdeen Euro Smaller Companies Fund (pension)
Scottish & Southern Energy
Jupiter High Income
Jupiter Income
Fidelity Special situations
Equitable Life European fund (pension)
Equitable Life North American fund (pension)
Fidelity European
Fidelity Global Special Situations
Fidelity South East Asia
Fidelity Moneybuilder UK Index Fund
Henderson Global Technology A
I am a complete beginner and this is my first post which I hope will throw up some interesting ideas.
I have a substantial defined contribution pension pot and a somewhat smaller portfolio of ISAs.
The current mix of investments by value is listed at the end of this post although the Scottish Life Managed fund is by far the largest portion amounting to 50% of the total value.
I have 10 years to go to retirement (if I can afford it) and do not want to switch my funds into lower performing, safer ivestments as retirement approaches.
Instead I thought that I could use spreadbetting to protect (hedge) these investments from large falls in the market.
The fist big question is: Do people think that this is a good idea? If not are there other insurances that I can take out?
If this is viable, then what trading plan do I need to put in to place?
Which type of trading?
I hold down a full time job so day trading is out, I'd have to be a swing trader or position trader. The latter sounds the best choice at the moment as I would only be able to place trades while the market is closed in the evenings.
Which Index?
If I am to hedge against existing investments I need to take positions in an index that tracks the underlying investment. I have tested some of the UK ISA funds and find that they track the FTSE250 better than the FTSE100. I need an index that tracks the Scottish Life Managed fund but at the moment I don't have historical data for that fund to be able to do that.
How much exposure?
If I want a perfect hedge to protect say £100K's worth of underlying assets then I have calculated that I need to sell £100K divided by the current value of the selected index. So for example 100K/FTSE100 @ 6100 = £16.39 per point. Have I
got that right?
How do I select my entry and exit points?
Well, I guess this is the main dilemma facing all of us. In my case there is a trade off to be made between how much growth I am prepared to sacrifice (in the underlying assets) if the market rises before I exit the position. My current
thinking is that I should set a stop 300 points (5%) above my entry point. Any smaller and I risk being stopped out by normal daily market movements.
Assuming that I have timed my entry correctly and I capture a market fall I still need to determine my exit point. The lowest risk option is not to exit at all but this could mean giving up potentially big gains. Any advice gratefully recieved.
How much do I need in my trading account?
This is more difficult to answer as it is strategy dependant. Would I be right in assuming that in the above example I would need at least the stop loss (300 points) x £16.39 per point = £4917? I know that traders are only supposed to
risk a small percentage of their bank on each trade but does that logic apply to hedging too? Clearly I need more than £4917 otherwise I could be wiped out in the first trade.
That is probably enough for now. Over to you guys. What would you do?
Kind Regards,
Tim.
Scottish Life Managed fund (pension)
NFU Managed fund (pension)
Scottish Widows BLK UK Small Companies Fund (pension)
Scottish Widows Aberdeen Euro Smaller Companies Fund (pension)
Scottish & Southern Energy
Jupiter High Income
Jupiter Income
Fidelity Special situations
Equitable Life European fund (pension)
Equitable Life North American fund (pension)
Fidelity European
Fidelity Global Special Situations
Fidelity South East Asia
Fidelity Moneybuilder UK Index Fund
Henderson Global Technology A
