Buy and hold CFDs

azecci

Newbie
3 0
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?
 

Hittfeld

Well-known member
437 12
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

Newbie
3 0
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

Junior member
10 0
Why is ETX cheaper to hold? Don't they charge the usual 2.5% financing fees?
 

lucas_king

Member
96 3
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

Newbie
3 0
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.
 
 
AdBlock Detected

We get it, advertisements are annoying!

But it's thanks to our sponsors that access to Trade2Win remains free for all. By viewing our ads you help us pay our bills, so please support the site and disable your AdBlocker.

I've Disabled AdBlock