Author Topic: Getting leverage  (Read 16208 times)

scorpioncapital

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Re: Getting leverage
« Reply #40 on: May 13, 2018, 03:13:44 AM »
You can easily get very high and fixed rate leverage. Buy a highly indebted company on cash:)
 The look through leverage can be much higher than you can achieve on your own. However, one should ask if a company has to use vast amounts of leverage, perhaps a utility, or a bank to get a regular return to you of 10-12%, is it a really great business? And would you want to double leverage a company like that? My rule is if the company has high look through leverage I buy it on cash, if it has no leverage, I will use a little bit of leverage on the portfolio end. That's why I think Berkshire is so powerful. It has long term fixed rate leverage via float and on top of that it invests in companies expecting to get a 10% unlevered return. I wouldn't necessarily double leverage a stock like that, but Berkshire is a strong exception.
« Last Edit: May 13, 2018, 03:16:02 AM by scorpioncapital »


Shooter MacGavin

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Re: Getting leverage
« Reply #41 on: July 03, 2018, 03:55:30 PM »
to revisit this topic, has anyone ever traded CFDs?

I think they're not allowed on US exchanges but IB will let you trade them (i believe) on non us exchanges. 

I'm thinking of maybe partitioning an account and having 1% of my networth in there as a speculative account and buying some CFDs on some deeply undervalued stocks.  You can get seriously high leverage using CFDs (which also means you can blow up easily of course, hence the partition).

Dynamic

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Re: Getting leverage
« Reply #42 on: July 03, 2018, 11:10:59 PM »
I tried a demo account with cityindex.co.uk recently - it has just expired. I tried some CFD and DFT trading and more than doubled the notional £10,000 within the 12 week trial using about 15* leverage while keeping the "margin" indicator below 200%. These contacts are interesting to UK traders because they're betting and are exempt from UK Capital Gains Tax.

They also accept payment by debit or credit card to fund the account, I read.

With a 36 month interest free purchase period on a credit card there's the potential to obtain ridiculous leverage on a limited initial deposit. It's also easy to blow up.

The CFD seems to show near real time market prices for the underlying with tight spread that might mirror the bid ask spread. I found it difficult to follow the overnight interest charges there, though I didn't persevere. DFT seems to bake in time value interest until expiry and have a wider spread and represent 100 stocks (at least on some US securities) so perhaps it's based on underlying options prices lasting up to 3-6 months or the stock price plus effective interest to expiry.

There seem to be many other similar platforms I see advertised on YouTube too.

I might consider opening a real account when I'm very sure about the downside and keep checking of my leverage to reduce the chances of blowing up in the short term.

Shooter MacGavin

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Re: Getting leverage
« Reply #43 on: July 05, 2018, 07:43:22 AM »
I tried a demo account with cityindex.co.uk recently - it has just expired. I tried some CFD and DFT trading and more than doubled the notional £10,000 within the 12 week trial using about 15* leverage while keeping the "margin" indicator below 200%. These contacts are interesting to UK traders because they're betting and are exempt from UK Capital Gains Tax.

They also accept payment by debit or credit card to fund the account, I read.

With a 36 month interest free purchase period on a credit card there's the potential to obtain ridiculous leverage on a limited initial deposit. It's also easy to blow up.

The CFD seems to show near real time market prices for the underlying with tight spread that might mirror the bid ask spread. I found it difficult to follow the overnight interest charges there, though I didn't persevere. DFT seems to bake in time value interest until expiry and have a wider spread and represent 100 stocks (at least on some US securities) so perhaps it's based on underlying options prices lasting up to 3-6 months or the stock price plus effective interest to expiry.

There seem to be many other similar platforms I see advertised on YouTube too.

I might consider opening a real account when I'm very sure about the downside and keep checking of my leverage to reduce the chances of blowing up in the short term.

Interesting.  Thank you.  Never heard of DFT before. Never used a virtual account before.  But maybe iíll Give it a try

Dynamic

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Re: Getting leverage
« Reply #44 on: July 05, 2018, 09:14:04 AM »
Ah, I could be wrong and that CFD profits ARE taxable (see this 2011 article).

It's Spread Bets (DFTs = Daily Funded Trade) that aren't taxable (see here for the types of trades)

This CMC Markets page indicates that Spread Bets are only available to customers in the UK or Ireland, and are exempt from Capital Gains Tax and stamp duty. CFDs are available to customers globally are exempt from stamp duty but subject to CGT. Maybe I'll try a dummy account with them at some point too.

Here are some dummy trades I made in Berkshire Hathaway, just because I hold it in real life and follow it closely, during my dummy trial account with CityIndex:

1st May: BRK.B DFT, bought 3 at 19,407.0 each (presume currency=GBP). At time BRK.B was about $194.070.
11th May: current price = 20,101.5, P&L = 2083.50 GBP (=3 x 694.50 = 300 x 6.945). At time BRK.B was about $201.080 (within a minute or two). Initial exposure to about 58,221 GBP as currency of P&L seems to be GBP for an underlying in USD.

1st May: BRK.B Jun18 Spread, bought 3 at 19,478.0 each (presume currency=GBP). At time BRK.B was about $194.070.
11th May: current price = 20,166.3, P&L = 2064.90 GBP (=3 x 688.30 = 300 x 6.883). At time BRK.B was about $201.080 (within a minute or two). Initial exposure to about 58,221 GBP as currency of P&L seems to be GBP for an underlying in USD.

1st May: BRK.B Sep18 Spread, bought 3 at 19,641.6 each (presume currency=GBP). At time BRK.B was about $194.070.
11th May: current price = 20,351.2, P&L = 2,128.80 GBP (=3 x 709.60 = 300 x 7.096). At time BRK.B was about $201.080 (within a minute or two). Initial exposure to about 58,221 GBP as currency of P&L seems to be GBP for an underlying in USD.

1st May: BRK.B CFD, bought 150 at 194.070 each (currency=USD). At time BRK.B was about $194.070.
11th May: current price = 201.08. x150 = 30,162, P&L = 1051.50 USD (=150 x 7.01). At time BRK.B was about $201.080 (within a minute or two). Initial exposure to about 29,110.50 USD as in USD as underlying.

I had gone into these four trades with a notional 13,010.17 GBP in the dummy account (I'd made 30% gain already) then closed all positions before doing this trial.
From there I took exposure to £175,579.80 GBP Sterling, plus a further $29,110.50 in USD, which was about £197,03.33 of GBP equivalent exposure. That total exposure is 15.14 x £13,010.17 cash. That is some enormous leverage.

If I ever use such an account for real, I'll be certain to rely on my own calculations of effective leverage as I simply don't understand their margin calculation.

My Margin indicator showed 197%, and the Total Margin shown was £10,204.54 in GBP. Because these seem to be difference bets, the margin seems to bear no relation to the total effective exposure to the underlying security.

My total unrealised gain on those 4 positions was £7,048.40 in GBP and I soon realised that sort of gain in the dummy account, to show over £20,000 with some sporadic trading when I felt the price was a little bit low over about a 12 week trial.

I was fortunate to miss out on the major decline in BRK.B to around 186-188 which could easily have wiped me out, I imagine, but I was glad to put on a variety of available positions and see what effect they had to really gauge how it works.

I hope this helps anyone interested to understand how it works. The help desk and the person who called me a few times to ask how I was getting on, can apparently reset your dummy account if you wipe out during the trial period.

BTW, the CFD prices seemed to be very close to live prices for BRK.B and AAPL, probably with a similar spread, though I didn't have a live pricing subscription active to be sure. I did some real buying an selling in my ISA account (which only allows me to hold cash in GBP) and noticed that "At Market" quoted prices I achieved (or was offered and declined), give or take my estimate of GBP:USD exchange rate, seemed to match quite closely the prices I calculated from the CFD pricing. I think the Market Open prices I saw later in the day, were also very close to the CFD price when the market opened.

All in all the power of the leverage is quite dramatic, even a little scary. A $7.01 shift in BRK.B's price is only 3.6% on the starting stock price of $194.07, but was about 54% change on £13,010.

They mention that losses can exceed your deposits. You are actually required to pay the debt to them if you go seriously negative (especially a problem that can occur out-of-hours), but they can also close your positions as they decline and your live balance is not enough to meet the margin requirements (e.g. 5% of the trade value, meaning 20x leverage).

This page on the risks could be a helpful read for anyone considering it. The risks you can take on are enormous.

Jurgis

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Re: Getting leverage
« Reply #45 on: July 05, 2018, 09:22:28 AM »
I was fortunate to miss out on the major decline in BRK.B to around 186-188 which could easily have wiped me out, I imagine

Kids, don't do this at home.  8)  ;D
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Shooter MacGavin

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Re: Getting leverage
« Reply #46 on: July 05, 2018, 09:36:12 AM »
I was fortunate to miss out on the major decline in BRK.B to around 186-188 which could easily have wiped me out, I imagine

Kids, don't do this at home.  8)  ;D


Dynamic,

Thanks for the trading diary. 

Jurgis,

Don't worry, he did it with a virtual account!

It could be fun for like a tiny percentage of your net worth though to really see how much upside you could get.  The CFDs basically remind me of the bucket shops in Reminiscence of a Stock Operator. Ha.  No economic purpose besides ridiculous speculation.

Jurgis

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Re: Getting leverage
« Reply #47 on: July 05, 2018, 09:44:48 AM »
I was fortunate to miss out on the major decline in BRK.B to around 186-188 which could easily have wiped me out, I imagine

Kids, don't do this at home.  8)  ;D
.... 

Jurgis,

Don't worry, he did it with a virtual account!

...

I know, I know.

I just find it extremely funny that you can get wiped out by ... hold it ... hold it ... a major decline of BRK ... which is one of the most stable stocks ... and not in bubble ... and the decline was less than 10%...

Sorry I'm just  ;D  ;D  ;D ROFL.
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Dynamic

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Re: Getting leverage
« Reply #48 on: July 05, 2018, 10:40:28 AM »
When I worked out my effective exposure in the dummy account I was shocked at how easily it was possible to take such risks. A real taste of the day trader's experience too with the flashing prices and the short term charts.

If I ever used this type of product when I thought the downside was very well protected and the risk-reward balance heavily in my favour I would be very careful to calculate my effective exposure and perhaps to institute a stop loss to prevent losses in excess of my original deposit.

I think I would only use it in a very extreme favourable circumstances and with a lot of careful thought about leverage and downside risk.