Author Topic: portfolio leverage question  (Read 5058 times)

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Offline ivan

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portfolio leverage question
« on: 12/01/2013, 09:44:26 PM »
Hi All,

since all the recent changes to SPA I decided to resurrect my battered , bruised, retired CFD portfolio to have another crack on the CFD side of things .

Now itís been a while since I had to consider leverage, MVRís for stocks etc so the brain is a bit lethargic with the maths and I recall the ďold daysĒ we had to massage average MVRís , CARís , number of positions etc, however, something doesnít seem right in the current environment. So the purpose of this post is to ascertain if Iím going crazy or TM needs a little more tweaking in the new environment.

Iíve started a portfolio with $10K cash and Iím using 2.5 portfolio leverage with a risk of 0.7%. So on face value, I wouldnít expect to see the initial portfolio value exceed $25K ( 2.5 x10K).

Now if you look at the attached pic, you can see the portfolio already has 18 positions and is at a market value of $33K, so already I have exceeded my 2.5 leverage, Iím currently at 3.5 and according to TM IĒm 35% invested, so the reality is, if I keep filling positions with MVR 10% CFDís then I think TM will let me go all the way to $100K !

Shouldnít TM have prevented me adding additional positions once I hit the $25K ?
Where does the 2.5 overall portfolio leverage get used as a constraint  ( I know itís used to leverage up the individual positions by 2.5 but I would have thought it would crimp the overall portfolio at 2.5 )

happy to be proven crazy ! (would make sense of some other things...)

 

regards
Ivan

Offline Ralph

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Re: portfolio leverage question
« Reply #1 on: 13/01/2013, 11:47:15 AM »
Hi Ivan,
Two things

1 I think you will find 10k with 2.5 leverage is is too little capital with two little risk with lower capital amounts I feel you need to increase the leverage more to allow for the costs involved with cfds.

2 Re leverage once you get to your set value of leverage as you have stated 2.5 then start taking shares. If you look at the public portfolio the leverage is close to the stated being 3.2 and they are just about 100% invested by using the extra money for stocks.
They can do this because the value of the stocks is used as equity and is taken into account when calculating the margin.
PLEASE NOTE IF YOU ARE TRADING CFDS IN A SUPERFUND YOU CAN NOT BORROW AGAINST THE SHARES SO YOUR MARGIN IS CALCULATED AGAINST THE CASH IN YOUR ACCOUNT SO THE WHOLE STOREY CHANGES!!!!!!!!!


I trust this helps.

P.S. With the new Spa rules my cfd portfolio is performing much better it does not have the huge gains but I am hanging onto the gains made rather than giving them back with drawdown as in the past
It's not your aptitude but your attitude that determines your altitude!!!!!!

Offline ivan

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Re: portfolio leverage question
« Reply #2 on: 13/01/2013, 12:43:43 PM »
HI Ralph,

thanks for the reply.

Firstly, I agree 10K @ 2.5 is quite low, however, essentially it's the same as trading a $25K SPA stock portfolio and as we've seen from the white paper results, it's kinda doable.

Secondly, you commented that once I reach the $25K exposure using CFD's then I should switch to stocks so each new position (not many with the  cash I have admittedly) will effectively be 100% MVR, hence limiting my leverage.  But by saying that, you are managing the overall leverage by making the  decision to flip over to stocks yourself , but my  point is that TM should be managing this risk level.  I saw in the  public portfolio as you say there are a few 100% MVR stock positions.  I'm also curious about this since those stocks have 10% MVR available via SAXO  ( I'm assuming the public portfolio is being maintained using SAXO as the broker). So what drove the decision by SWS to buy stock and not CFD for those positions ? Nearly all the positions in the public portfolio were filled on 10/12/12 after the market went low risk, so I would love to know if TM presented those 3 positions in question as 100% MVR trades. Because if that were the case, then something is broken in my TM as it keeps serving me up 10% MVR candidates even though I have exceeded my 2.5 portfolio leverage.

regards
Ivan

ps yes I'm aware of the SMSF rules, SAXO actually turns off the ability to use your stock as colateral "if" they are made aware it's an SMSF account. (else they think it's just another trust account).  It's another topic in itself, but since you are allowed to trade CFD's in a SMSF, then accountants know that interest expenses are ok and are to be expected with CFD's , so it would take a pretty savvy accountant to figure out you have used stock as colateral at some point in time..... But I guess it all comes down to playing within the sometimes very stupid SMSF rules. !!!
 


Offline Ralph

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Re: portfolio leverage question
« Reply #3 on: 13/01/2013, 01:15:18 PM »
Hi Ivan,
What I said was go to stocks once the leverage reached 2.5 times not $25K which is the same for $10k also I believe SWS made the desicion to take the trades as stocks even though they were available as CFDS simply to control risk.
Trademaster tells you what the situation is it does not prevent you from taking on too much risk.
$25k with cfds should bring similsr results to $25k in stocks except for the extra costs so I still wonder if trading a $10k portfolio is a good option only sws can answer this and I don't think they will till the money management has been done.
Going on the old rules a CFD portfolio should start at $25k min which even then should be traded with much higher leverage what was suggested was 3-4 times
It's not your aptitude but your attitude that determines your altitude!!!!!!

Offline Ralph

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Re: portfolio leverage question
« Reply #4 on: 21/01/2013, 10:11:45 AM »
Hi Tim,
As the money management has not yet been done on the cfd system I would not be betting the house on it lol.
It has been working well for me though with a small account.
My suggestion would be to look at how much capital you intend to invest multiply it by you leverage factor then go through the spa research on that amount of money and choose your settings acordingly.
The safest option would be to wait until the new research is completed which should not be to far away now the team has a fuller understanding of the research tools but anything can happen so who really knows????
It's not your aptitude but your attitude that determines your altitude!!!!!!

Offline ivan

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Re: portfolio leverage question
« Reply #5 on: 22/01/2013, 10:46:38 AM »
Hi Tim (and Ralph)

spoke to Sean at SWS recently about this issue and he confirmed that at present the overall leverage must be monitored and managed by the user. TM will use the leverage figure input for postion sizes, but not the overall leverage.

He said that when David returns from leave, their ambition is to work on SPACFD, do the portfolio runs again, money management etc with a view to reduce those massive drawdowns which have been experienced in the past.

Tim, yes I think they will support NASADAQ using CFD's, but I'm also thinking that depending upon which broker you use there could be issues with the coverage of the whole NASDAQ market. Even though through liquidity settings we can zoom in on a subset, I'm not sure there won't be gaps in the offerings.  So if a CFD couldn't be taken then you take the NASDAQ stock and your costs go up dramatically if you're using say SAXO or another Aussie broker. (Can't trade CFD for USA with USA based brokers like IB as CFD's are prohibited in USA).
  I think SAXO is $40 round trip for USA CFD and more for USA stock.    I'm currently using SAXO for USA CFD but it's more a sector rotation strategy that only results in a handful of trades per year, so the brokerage isn't a big issue.

Tim as far as getting my CFD portfolio up and running again using the ASX, I just converted the existing profile in TM and I'm using $10K cash, leverage of 2.5 and risk of 0.7%

Although in light of my discussion with Sean, I'm kinda thinking of maybe closing the existing trades and waiting for the full research and proper release to happen, but I see I'm about $1K open profit so  I'm tempted to let it runs it's course now...  :biggrin:
In my mind I just treat it as a $25K SPA portfolio (except being careful not to exceed 2.5 overall) so I don't think it should be a huge problem if you wanted to get it back up and running now.

Hope this helps !

regards
Ivan'