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Online Share Trading

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INVESTING WITH CFD'S

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WES
Super Contributor
A while back, about three months ago, me and a mate of mine attended an excellent portfolio management workshop. It basically learnt you how to develop a strategic portfolio. You took the top 50 shares according to market cap, got rid of the dogs, example gold shares, and contructed a portfolio of 20 shares. I contructed my portfolio, and invested about R 800K. My mate also contructed a portfolio, invested also about R800k, except that he bought cfd's. His exposure on cfd is at R5.5 mil, with a R800k cash investment. Needless to say, over the last three months he has been booming. He has a 10% stoploss on all his cfd's. He thinks investing using shares is a waste of time ! Comments please .
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13 REPLIES 13
reyden
Frequent Contributor
Hi, he is way over-leveraged. If you attend courses presented either by Garth Mackenzie or Warren Pea*****, they recommend no more than 3x leverage, his portfolio is at 6.88x. You can get away with this in a storming bull market, however, when the tide turns, he could be in serious trouble, my tencents
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iggy
Occasional Contributor
Who was the workshop with?
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iggy
Occasional Contributor
Who was the workshop with?
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reyden
Frequent Contributor
Garth Mackenzie - www.traderscorner.co.za OST is also hosting him, have look at the courses. Interestingly, Garth does not hold more than 4 shares and if my memory is not shot, he is up 34%
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Rams
Super Contributor
well, he has a stop loss(so no problem trading CFD) but 10% of what? share price or trading funds or entire portfolio value...Agree, too many shares and too wide a stop...
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Preston
Super Contributor
well, he has a stop loss but 10% of what?
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Not applicable
I work with similar leverage on CFD's (cutt-off is 5times). Criteria for stock consideration are 1) relative strength 2) trading within 20% of its yearly high and 3 trading on a pullback. Caution to prevail when Index 120day trending down. I have backtested this for the last 15 years with a 30% gain vs 10% loss. Odds are better than even (around 55% - 60%) on a 30% gain. Biggest problem - you have to be prepared to accept the losses. I would have had 50% of my entire portfolio wiped out in 2008. But this you have to be prepared to accept, if you consider a 50% loss vs annual gains of 70%-90% on good years. Booms outweigh busts - period.
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reyden
Frequent Contributor
Skaaptjop, if I remember correctly you enter on overbought stochastic, assuming 1,2 & 3 are ticked-off?
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WES
Super Contributor
It was with Charles Hattingh, briliant course, best money I have ever spent.
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SimonPB
Valued Contributor
wes, it works until it doesn't and then the wheels seriously fall off .. with my momentum portfolio I would make a killing with CFDs except that the red years would kill me first
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Rams
Super Contributor
and 10% stop will be a painful death....
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Not applicable
have you not heard of position sizing?
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Rams
Super Contributor
yes, i have been thru the whole Van Tharp thing, thats why i asked 10% of what...2% of 800k could still be 10% of share price...i dont see a problem with CFDs if your stop in place and at reasonable risk level...also, these guys just went to a workshop and decided to trade 800k, so i not interested in what instrument but money management.
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