Buy and hold CFDs

[azecci]

Does anyone have any thoughts on using CFDs for buy & hold instead of purchasing regular shares?

With analysts predicting an average S&P 500 rise of around 10% for 2013 and CFD financing still very low at under 3% surely this presents an excellent opportunity for an investor to take advantage of the leverage offered by a CFD.

Is anyone else using this strategy or has any thoughts on it?

 

[ErnestC]

ETF is cheaper to hold.

 

[Hittfeld]

With CFDs and ETFs interest rates can change quickly, using LEAPS (long term call options) interest will be fixed for those 2 or 3 years.

Although leverage is potentially higher with CFDs, its restricted by max DD. So no advantage compared to LEAPs.

 

[azecci]

An ETF is cheaper to hold but typically doesn't offer the same leverage as a CFD (perhaps 2-3x rather than 10+ with a CFD). With a 10% rise in the S&P you'd get around 70% profit with a CFD.

LEAPS I always thought of more as risk-reduction rather than a pure-profit play. How do you think they would compare to a long CFD in a bull market?

 

[guidfarr]

Why is ETX cheaper to hold? Don't they charge the usual 2.5% financing fees?

 

[lucas_king]

Does anyone have any thoughts on using CFDs for buy & hold instead of purchasing regular shares?

With analysts predicting an average S&P 500 rise of around 10% for 2013 and CFD financing still very low at under 3% surely this presents an excellent opportunity for an investor to take advantage of the leverage offered by a CFD.

Is anyone else using this strategy or has any thoughts on it?

Hi,

This is exactly what I’m doing. As you said, with my overnight financing charge currently at around 3-3.5%, I’m taking he view that as long as my positions are up more than that, then I’m ok to hold on to these positions for as long as I like!

 

[azecci]

Yes, the S&P has risen 20% so far this year and with my average leverage of approx 14x on a CFD with ~3% financing this equates to an expected 14 x (20%-3%) = 238% return. In practice I am holding individual named stocks with a tech-bias and was fortunate that many of these have outperformed this year (e.g. Netflix / Micron / WD / Yahoo) which pushes the actual return to around 300%.

This strategy clearly only makes sense in a low interest rate environment. With a fed rate increase on the cards for late 2014 / early 2015 I aim to be fully out of CFDs before then.