CFD Trading

Discussion in 'Trade Journals' started by Alexander Gray, Dec 25, 2016.

  1. Alexander Gray

    Joined:
    Jun 4, 2016
    Messages:
    61
    Likes Received:
    23
    So I have around $1000. If I invested this, if I were good I could probably return $200-300 a year.
    Any expenses + fees would make the profits not worthwhile for the risk. And besides, most brokerages wouldn't even except that low amount.

    However, with CFD trading you start with a low cap that is highly leveraged. You pay a lot more fees BUT if you are able to do successful swing trades then you can aim for $200-300 a month. You take on a lot more risk + reward.

    Due to this excessive risk (and increased profits) I have decided to run a model portfolio for several months before officially starting to see if it is workable. It will also help in collecting much needed data to refine my forecasts.

    The Trading Thesis
    I will look for undervalued companies based on the margin of safety found by fundamental analysis and market sentiment.
    Market sentiment will be important since I am trying to minimize my trade time.
    A stop loss will be set to -1% (TBF) of initial price.
    Once asset is > intrinsic value a stop loss will be set = instrinsic value.
    Once a more appealing asset is found the original trade will be closed or
    trade will be closed depending on no. of days asset has been traded + systematic risk the position presents to portfolio.

    Dividends are irrelevant because the return of CFD = Change in Asset Price.

    Its a pretty simple thesis. But the hard part is finding the intrinsic value and calling the right time to sell the position. The KEY is to reduce the no. of days a trade takes.

    Expenses + Fees (and leveraging)
    Commission Rate is $10 to start a position (or 2 cents per share if you buy enough, which I wont). No fee to sell a position.
    The big big big big big cost is the holding cost overnight which is:
    (Units x opening trade price x holding rate buy) / 365 x CMC Markets currency conversion rate.
    per day.
    1 Unit = 1 Share of X Asset
    Holding Rate Buy = 1 Month LIBOR + 2.5% (so I've placed an estimate of 0.8 (80%).
    So for my test model I will be doing the following equation:
    (Units x opening trade price x 0.85) / 365 for now. I need to try and get an accurate value for the currency conversion rate.

    I will be leveraging 20x for each position.

    Starting Out
    I will find the intrinsic value of a handful of shares. The larger the margin of safety (and less the systematic risk) the more capital will be allocated to the asset. I will post a new entry once I have started the first positions. The intrinsic value will have to be reached within a month or less time period which is the hard part. With the data I collect from this trial I will be accurately able to find profits and refine my current basic model.
    For each trade I may give some details as to why I have made the trade but I will not be sharing all my research and methods for calculating the intrinsic value of each asset.
    I will be focusing on NYSE & NASDAQ share prices.
    Thank you for reading the first of many more entries over the coming months. Feedback would be greatly appreciated.
     

Share This Page