I stopped my posts about day trading Forex as I'd given up in disgust after losing $3,000 fairly rapidly. The last trade was especially annoying as I'd gone long the AUD at around 83.15c US and had been liquidated when the AUD dropped to below 82.70c on a sharp dip. It only traded a few points below the liquidation price before bouncing back up to above 83c, and since then has trended strongly upward to over 86c.
Since my original plan had been to buy the AUD vs USD when it was around 82c, but had lost my capital trying to day trade short runs up and down, it was disappointing to end up sitting on the sidelines with less than $250 in my trading account and not having enough margin to benefit from the strength of the AUD.
I finally decided to transfer another (final) $1000 into my trading account and take a small ($25,000) long position on the AUD. I figured that since I have around US$75,000 of stock in my "little book that beats the market" portfolio that is unhedged, I can't really loose by doing this. If the AUD does continue to rise against the USD the gains from my Forex trading will offset the currency losses from my US stock portfolio and vice versa. Although the effective interest rate on keeping a position open is around 7%pa the current run up in the AUD is so strong that the interest cost is negligible.
BTW - with the AUD around US$0.868 my net worth is breaking through one million in USD.
Copyright Enough Wealth 2007
Viewing the 'CFDs (Contracts for Difference)' Category
I stopped my posts about day trading Forex as I'd given up in disgust after losing $3,000 fairly rapidly. The last trade was especially annoying as I'd gone long the AUD at around 83.15c US and had been liquidated when the AUD dropped to below 82.70c on a sharp dip. It only traded a few points below the liquidation price before bouncing back up to above 83c, and since then has trended strongly upward to over 86c.
I had a look through the available index CFDs from CMC Markets and couldn't find one for the Shanghai Market. The closest appears to be the HK33 Index. I was planning to trade that Index but the chart hasn't updated since mid-morning Monday, so I'm not sure if this index is trading or CMC Markets has suspended it due to the big falls in the Chinese Market this week?
Anyhow, I instead went back to trading the AUDUSD spot rate. The AUD had risen sharply in the past couple of days on speculation that good economic figures, low unemployment, increasing job vacancy ads, and a slight recovery in the housing construction industry might push the Reserve Bank towards increasing our interest rates another 0.25% tomorrow morning. I personally doubt that there is enough inflationary pressure yet to warrant another rise - after all inflation has dropped back within the target range, and so far there hasn't been any evidence of wage pressures resulting in a general wage breakout. I discovered that I can manually edit the $ amount being traded - rather than just $50K or $100K I can enter a $25K trade. So I sold $25K of the AUD at 0.8330 yesterday evening. As usual when I go short the AUD kept increasing today, so I've lost a bit on this trade so far, but at least it was only costing me $2.50 a point with this size position. The AUD has reached close to the 22-year high this evening, so I sold another $25K at $0.8370. I now have a total short position of $50KAUD at an average price of $0.8350. I'll leave this position open and see how the price reacts when the Reserve Banks decision is announced tomorrow morning. Hopefully if there is no rate rise the AUD will drop back slightly...
I didn't trade recently (I don't have enough money in the account!) but today I transferred another A$1,000 into the account so I can trade next week if an opportunity arises. I'm a bit wary of AUDvsUSD forex, although I may short the AUD if it still relatively high on Monday - apparently the latest rise is based on speculation that the Reserve Bank may raise interest rates at next week's meeting. I think this is unlikely, which should result in a still pull-back after the announcement on Wednesday morning. Then again, I could be wrong as usual
The real reason I've topped up my trading account is to try to short the HongKong33 if (when?) the current bull run ends. Given the huge gains in the past 2 years, and the sudden 6% drop this week in reaction to the Chinese government raising brokerage fees in an attempt to cool the market, I expect that there will be a substantial correction in the HK index in the near future. The market recovered this weeks drop within a couple of days, so the speculators are currently still very bullish, but there's a limit to how long such a bubble can inflate. The trick will be to not set a short position too early and lose all my trading capital while the bull run continues.
Lucky 13! I dived back into forex trading with the last $700 out of my initial $2000 kitty. I lost a quick $135 on a sudden move the wrong direction, then bought the AUD at 0.8251 which was close to the bottom of recent trading ranges. I hung on through a couple of down turns to under 0.8200, but today the bottom dropped out of the AUD (or the USD suddenly gained support - I never know which until after the event), and CMC Markets automatically liquidated my position when my account balance dropped to less than US$200. I can't trade even a $50K position with a balance under A$500, so I won't be trading for a while, if at all. My initial plan was to "play" with $1000, but I soon had to add in another $1000 in order to trade, after my initial quick losses. If I add further funds in I'm in danger of throwing good money after bad - and developing a gambling addiction! The total loss of $2000 isn't material to my overall net worth, but it is still significant (and unpleasant). I took me a lot longer to decide to spend $1800 on a new computer system than it took to lose a bigger amount day trading. Day trading is definitely playing with fire.
I should rename these posts "Disasters in Day Trading"
After holding on to a AUD/USD short position that I'd opened at 0.8323 for more than a day, while the price bobbed up and down within a few points of my entry price, the AUD suddenly dropped down rapidly to 0.8305 late last night, then levelled out at 06/07. As both DW and I had short positions open I woke her up to ask if she wanted me to close out her position. She got up to have a look at the chart and, after a bit of hesitation, decided to close out at 0.8306 at a good profit on this trade.
I was impatient for her to decide and make her trade, as I then had to log out of her account, and wait for the MarketMaker app to close down, before I could log into my account to close out my position. Unfortunately the AUD rebounded to 0.8311/13 before the trading software was open with my account on the screen. I thought about still closing out at this price, which would have made me a $100 profit on the trade, and possibly then going long on the AUD to gain from any continued increase back to its previous trading level of around 0.8323. In the end I decided that this may just be a temporary upwards jig in a general down trend, as has often happened before, so I kept my short position open, waiting for the AUD to drop back down towards 0.8300 (which would have made back my losses from the previous day's trading).
Instead the AUD continued back to its earlier level of 0.8322/24 so I left my position open expecting the AUD to level of at this level and possibly drop again later in the evening. At that stage the chart looked like there was a slow downwards trend in place. I shut the trading window while I did some blogging, then went back a short while later to check on the spot price. Shock! Horror! The AUD had continued to climb rapidly, and was sailing through 0.8341, 0.8342, 0.8343... I was now down $200 on this trade and it looked like this could be one of those vertical moves of nearly 100 points. At this stage I lost my nerve, and, after holding my trade open for over a day, closed it out at 0.8343. I immediately bought the AUD at this same price, hoping to make back some of my losses if the strong uptrend continued for a while. Of course, the AUD immediately reversed direction and started dropping, so I closed out that position at a small loss. After watching for a little while it looked as if the upward spike in the AUD had definitely lost all momentum, and the AUD was drifting lower, and started to drop a bit faster. I then went short the AUD again (I should have not closed out in a panic in the first place! D'Oh!), only to see the AUD regain some ground. At this stage I gave up in disgust, closed out my position (again), and went to bed.
Today the AUD has slowly drifted back down to yesterday's low of 0.8308, so if I had not bothered watching the screen last night and just kept my position open for 2 days instead of one day, I'd have actually made a good profit, rather than losing $255 in three losing trades in a row. My trading account is now down below $1,000 (after I transferred in a second $1,000 last week - bringing my total trading kitty to $2,000) so I can only trade A$50K rather than $100K. I think I'll just watch the market for a while before I attempt another trade. It will take a long time to claw back my losses. Trading is good fun, but it's turning out to be expensive entertainment.
My problem at the moment, aside from the fact that I'm losing money trading, is that I haven't been able to stick to a trading plan. After losing a large chunk of cash by holding a short position open for several days, only to finally close out just before the AUD started a major downtrend, I had decided that I wouldn't keep positions open when I couldn't monitor them - such as overnight or while I was at work. However, after dropping US$30 on a quick $100K AUD/USD spot trade on Friday morning (Buy @ 0.8256, closed out @ 0.8253), I managed to make back the $30 that evening, buying $100K @ 0.8280, and getting out at 0.8383. I was very nervous in that trade - after watching the AUD go up to 0.8386 I closed out when it dropped quickly to 0.8383. It then (of course) rapidly moved up to 0.8300, which would have made me $170 if I hadn't panicked at the slight drop earlier on. As this was at the top of the current trading band, I then Sold $100K at 0.8300, and was pleased to see it soon drop back to 0.8290 as expected. At this point I thought about closing out a making a $100 profit on the day and calling it quits, but, having missed out on making $170 by closing my earlier position too soon, I decided to hold on to see if it dropped all the way back down to 0.8380.
The AUD then started a major uptrend (although it didn't seem like that at the start!), so I was soon in the red on this open short position when the AUD climbed above 0.8300. I missed a few opportunities to close out at 0.8300 on dips, as I was still hoping to make a profit on this trade, and in the end sat by and watched it climb to over 0.8330 shortly before the market closed. It did drop back to 0.8322, so I then dumped my earlier resolve to not leave positions open, and left my $100K short position on the AUD open while the market has been closed over the weekend. I'm now waiting to see if the AUD drops against the USD when the market opens in a couple of hours. The AUD seems to be at the high end of the recent trading range, so it seems more likely to drop back further than to resume rising. BUT, this is based on historical patterns, which are not really and guide to future behaviour if something fundamental suddenly changes. Just ask the guys who used to work for Long Term Capital Management.
Trading this way is totally illogical - I seem to be just mentally crossing my fingers and hoping things turn my way when I'm in a losing trade, rather than closing out when my loss reaches $100 on a trade, which was my original trading plan. I think the fact that on the some of my first trades where I did close out on a $100 loss, holding on to the position for a few more minutes would have seen the trend reverse and my losses recover shook my faith in that plan. As it is, I'm making trading decisions on an ad hoc basis ("gut feel"). So far it seems that the old adage that "people don't plan to fail, they just fail to plan" is holding true for my day trading.
This morning my short position of $50K AUD/USD spot at 0.8244 wasn't looking too bad - although the price had gone as high as 0.8308 a couple of times, in the morning it had dropped to around 0.8372 and from the 1 month plot it was looking like it might drop back further and erase my losses on this trade. Unfortunately while I was at work a lower than expected unemployment figure of 4.4% came out (general expectation had been steady at 4.5%) which meant the chances of another interest rate rise later in the year increased. I'm not sure exactly why this translated into an immediate 0.5c gain in the AUD, but it did - so in the afternoon at work I could see the AUD bobbing around 0.8315-0.8325, but I was willing to hang on for a bit longer. However, around 5pm the AUD started appeciating rapidly against the USD, so I rang home and got DW to close out my position at 0.8334, crystallising a US$450 loss!
Of course the AUD started dropping back slightly shortly after I'd bought back my $50K position. This evening it has been oscillating between 0.8310 and 0.8335, so I made a few $50K sells above 0.8322, and buys around 0.8312. In three trades I made back US$100, but I still have a lot of work to do to make back the $450 I lost by sticking with a bad position for the past three days.
I'm currently short AUD$100K at 0.8320, as the AUD is close to recent all time highs, and, having gone up over 1c in the past few days, it has a good chance of dipping back to below 0.8320 in the next few hours. If it doesn't, and starts going above 0.8330 again I'll have to close out at another loss, as I'm not game to leave my positions open while I'm asleep or at work after this recent fiasco.
I haven't posted about my forex trading for a couple of days because I'm sitting on an open short position that is in the red. Having made several trades which I closed out once my losses exceeded my planned stop-loss of $100, only to see the price move in my favour shortly afterwards, I decided that I wouldn't close out my position this time. The theory being that while the AUD/USD was bouncing up and down within a trading range, a position opened somewhere near the middle of the trading range should eventually become profitable if I held on long enough.
Of course, having sold $50,000 AUD at 0.8244, after a run-up from previous lows around 0.8200, the AUD then rose slightly and, despite dropping slowly over the next few hours didn't drop enough to make it worthwhile closing out my position. I then decided to go to bed and see what had happened by morning. Of course the worst case scenario resulted - with the AUD appreciating strongly while I was asleep. Sticking to my new "plan" to just ride out this setback until the AUD dropped back down, I've now been watching the AUD hover around the 0.8280-0.8300 region for a couple of days.
My email box is getting full of margin call and liquidation warnings from CMC Markets every time my cash balance drops below the required 1% margin. But I'm not too fussed if they liquidate my position as I'll only lose $1,000 maximum (my initial account balance). And this would only happen if the AUD goes above 0.8360, which would be close to a 17-year high.
Meanwhile, my real investments are all doing nicely - my "Little Book" Portfolio of US stocks is doing quite well with the annualised ROI getting above 20%, even after deducting the exhorbitant buying and selling costs. My Aussie stock portfolio is also doing very well, with the local market hitting new all time highs, which is also boosting my retirement account. And my real estate is also moving up again, now that the Sydney housing market is starting to recover.
BTW - my sitemeter stats for enoughwealth.com registered a huge spike today. All from a mention of one of my posts on The Simple Dollar"! I usually get around 50 visitors each day - so far I've already had 126 visitors in three hours!
We missed out on the big slide in the Aussie dollar yesterday (it was caused by the RBA announcing that inflation was lower than expected last quarter and had a good chance of staying under control for the next 12-18 months). DW was out of the house during the day and by the time she got home and started trading the dollar had already dropped to around USD$0.8190. I did a $50K trade when it spiked up to 0.8212, and for a while it was looking good as the AUD slide back down to 0.8202 - I was holding on hoping it would go back down to previous intraday lows of around 0.8175 or so. However, it slowly began to climb back up, and I eventually closed out at 0.8208, making just USD$20 on the trade.
Yesterday's second trade was looking good for a while - the AUD had dropped from 0.8265 to 0.8250 USD. I thought about closing out at that point and making a $150 profit, which would have more than made up for the earlier $110 loss. However, as is always a danger, I got greedy and changed my mental exit point to 0.8240, as the trend seemed to be continuing. Of course the AUD then changed direction and I ended up watching it ever so slowly drift up, with occasional dips to give me false hope, until I gave up and sold out at 0.8264, netting a minimal $10 profit.
Today DW had made three trades before I got home from work, each one placed just before an apparent trend reversed direction. Her fourth trade was a more successful and she managed to claw back most of today's losses before calling it quits. I then logged in to my account and was going to also buy the AUD and hope the strong uptrend continued, but by the time I logged in there was a pause and a slight drop in the AUD. I should have waited a while and watched what happened next, but instead I decided it was likely to be a pullback, so I sold the AUD at 0.8306 instead. It then resumed it's uptrend and I intended to wait a while and see if it peaked and started to drop as expected. Unfortunately I decided to bail out when it reached 0.8334 (a $280 loss!), and then sat by the uptrend did finally peter out and it started to drop.
By this time my account balance was below my intial A$1000 level, so I could no longer trade A$100,000 on 1% margin - I instead sold A$50,000 and am sitting here hoping that this time the expected correction will materialise and I make a small profit on this trade... It does appear to be dropping slowly at this time, unfortunately with a A$50,000 position opened at 0.8323 I'd only make back about 1/3 my loss if it retreats back to the level I initially sold at this evening.
If I lose my entire A$1000 trading stake I'll call it quits and do paper trading for a while.
DW has been on a trading hot streak since she opened her own account. She is now up almost 100% in just a few days. However, nine trades isn't a statistically valid sample - I'll reserve judgement on her trading "knack" until she's been at it for a couple of months.
My forex trading has been a disaster these past couple of days. Each time I've taken a position in what appears to be an established trend, then next few ticks are a major reversal. I'm now back to the starting capital, and every time I drop below $0 available margin with my $1,000 open position I get an automatically generated margin call email. Luckily I can just ignore these as I'll have a positive balance when I close my position (I wouldn't let it run to more than -$200 margin). The margin call emails warn that if I don't add in additional funds to bring my account back into the positive they may close out my open positions - I've no idea how large a negative margin would be required to trigger this. Perhaps if a went to -$1000 margin, so my overall account balance was $0, I'd automatically be closed out. Hopefully I'll never be in this position. At the moment I'm short the AUD with an apparent down trend underway - we'll see if this time my luck changes and the trend continues for a while, rather than reversing as soon as I've taken a position!
Current Trading Portfolio Status
I'm tracking my forex trading with a google spreadsheet. It includes some stats on the ration of winning:losing trades, % winning trades, avg. amount gained in winning trades, and avg. amount lost in losing trades. I'll insert the spreadsheet in this post and link to this post if future updates about specific trading activity.
Day Trading Performance
I decided to do another trade last night after all, and promptly lost another USD$80 - the price had been bouncing up and down and I thought I could sell at the top of a bounce and claw back some of my previous loss. Of course, it then stopped bouncing and went up!
This morning my wife's account was activated after her A$1000 deposit had been processed. The AUD started a rapid drop immediately after the latest quarterly CPI figure came out at 11am - only a 0.1% rise for the quarter. This means that inflation seems to have moderated, so it's less likely that the Reserve Bank will raise interest rates next month after all. It was interesting to see that this news had exactly opposite effects on the AUD and the stock market:
Although after the initial spike up the market drifted back down, whereas the drop in the AUD was more prolonged. DW put in a SELL order for AUD$100,000 (costing $1,000 for the 1% margin) when the Aussie dollar started to slide, but, although the order said "executed" it didn't appear in her FX positions listing. After checking with CMC markets help desk it turned out that her bank had deducted $1.50 fee for the BPay transfer, so her trading account only had A$998.50 available. Due to insufficient funds her $1000 SELL order was automatically cancelled! By the time she'd worked this all out, and decided to trade a $50,000 position instead, the drop in the AUD had bottomed out. DW was quite annoyed that she missed out on a potential $250 gain. She made a series of small trades this evening, but there was no clear trend and she lost on several trades. Her most recent trade is making money as the AUD recovers - so she may break even on today's trades.
The paperwork for DW's own account for trading CFDs with CMC has all gone through and she transferred an initial $1000 into the new account. She should receive her login details tomorrow and can then start trading on her own account. Her overall trading on my account had resulted in a net profit of AUD$348.08, on which I'll have to pay tax, probably at a rate of 30%. I'll deposit $243.65 into her account tomorrow, and leave the "extra" $348.06 sitting in my account so I can do some trading myself. I quite enjoyed "playing" the forex market, so I'll probably give it a go (at least until I've used up the $348.06 "margin").
The AUD dropped from around .838 to around .830 during the day - due(?) to the producer price index being flat for the last quarter, which led to speculation that the CPI figure due out on Wed will also be lower than expected, so the Reserve Bank won't raise interest rate again, after all. It was speculation of another interest rate rise that had allegedly been driving the AUD towards 84c US recently (although I think the dollar will still trend up as long as commodity prices remain strong, which probably relies on the China economy remaining strong. As China is hosting the Olympics next year, which is usually a fillip to the host nation's economy, I think the AUD still has a way to go in this uptrend).
But that doesn't have much to do with the short-term fluctuations in the AUD/USD spot exchange rate that we're actually trading. Of course my very first trade off my own bat did badly - I bought the AUD at 0.8333/35 thinking that it had bottomed and was recovering towards the 0.8340 level. It turned out that I'd bought at the local maxima, and when it continued to drift lower I cut my losses at 0.8323/25, crystalising a USD$80 loss. It's still bumping along with a slight downward bias, so I don't think I'll be trading again tonight.
DW went solo with a spot AUD/USD trade today. Managed to make around US$300 profit! It seems so easy when things go your way, the biggest dangers are in getting overconfident and not sticking to your trading plan - ie. closing your position if things don't go the way you expect. We'll see how her trading progresses in the next few weeks. I suggested that she apply for her own CMC account to do her forex trades - there's no point in her continuing to use my account, as the profits are taxable at my marginal tax rate, which is higher than hers while she is on maternity leave.
DW and I sat up for two hours with our shorted $100,000 AUD/USD spot price position open, watching the Aussie dollar drop from 0.8360 to a low of 0.8358 and then bounce around 60/62 for ages. In the end we gave up (the down trend seemed to have petered out) and closed the position with a net profit of USD$70.00
Of course DW started musing that "if I could make $50 a day trading while on maternity leave..." which I had expected. I'm not too worried that she'll get carried away and lose any substantial amounts of money, as she was happy to agree to call trading quits for the day if she loses more than $100 in a session.
It was funny that because the AUD had initially gone up a few pts after we opened our short position, and we had used the entire $1000 I had sitting in the account for the trade, we didn't have our margin covered for a short while at the start. This morning my email box had a "margin call" for AUD$23.89 which had apparently been automatically generated when we initially went into the red and didn't have the full $1000 margin covered. As we had closed out our position at a profit after a couple of hours I just ignored the email. It was my first ever "margin call", despite having used margin loans for my stock portfolios for over ten years.
It's interesting that I view trading differently from DW. I think that trading (especially synthetic trades like CFDs) is a zero-sum game, and any winning streak we have will be due to "luck" rather than any great trading skills. DW on the other hand imagines she will be able to trade profitably be anticipating market moves. Then again, when we occasionally visit a casino I'll stick to the $5 blackjack table and attempt to count cards to shift the odds in my favour, whereas DW carefully studies the patterns of numbers that have come up on the roulette wheel and can see "patterns" in the sequences of (random) numbers that have come up.
Perhaps DW's degree in economics makes her more likely to view random events as having some underlying, predictable basis, whereas my degree in applied science makes me view more of the things that go on in life as simple random, and unpredictable, events.
Anyhow, at the end of day 1 as a day trader, DW's account balance is AUD$1000 and USD$70 - for a total value of AUD$1083.64. If you annualise this out our ROI so far is around 3,100% pa! Perhaps I should start a "secrets of day trading success" newsletter
Well, my theory about using CMC Markets Contracts for Differences to trade my US Stock portfolio at lower cost than via my broker was a non-starter. When I picked a short list of 6 possible stocks to buy from the "magic formula" list, none of them were available to trade via CMC Markets. So it looks as if I'll stick to buying US stocks through my Comsec-Pershing broker account for $65 per trade. Some kind folk have suggested some US online brokers that will open accounts for non-US traders, but they all required funds transferred in advance of trading, and by wire transfer. Wire transfers cost $30 each time from my Australian bank, so it would cost half as much as the Comsec-Pershing brokerage fee just to transfer the funds for each monthly trade. I could save on the wire transfer fees by shifting a large chunk of cash into the US broker account, but as I'm borrowing the trading funds at around 8% pa interest this also would cost.
Anyhow, having opened the CMC Markets account and funded it with an initial A$1000 it was ready and waiting when DW suddenly decided that the AUD had gone too high vs the USD and wanted to know how she could short the Aussie dollar. I told her she could use my CFD trading account and I did an initial trade selling $100,000 AUD vs USD spot @0.8369, just as an experiment to confirm that currency movements were affecting the open position in the way I expected. So far the AUD went up 4 ticks, costing DW $35, then dropped back down to 0.8365, making her a $35 "paper profit". I'll watch the currency movement on the live chart for a while before closing the position before I go to bed. I'll then explain what happened to DW tomorrow and let her have a go at doing a trade. Personally I think this is just like gambling (which DW enjoys on a small scale), which I don't get any pleasure from. I think this is going to turn out to be a lose-lose situation. If DW makes some money from trading she'll probably think it's an easy way to "earn" some money while on maternity leave, and will be at risk of suddenly making a big loss. If she loses a little bit she'll probably lose interest in it after a while. Either way I don't think this day trading lark will finish with us making any profit.
Hopefully this "entertainment" won't end up costing too much...
This month I selected Optimal Group (OPMR) from the MagicFormula listing to add to my "Little Book That Beats The Market" Portfolio of US Shares (100% geared). I bought 600 OPMR @ $8.48. My US Stock Portfolio currently stands as:
Symbol P/E Last Shrs Trade Date Paid Comm Value Gain
HRB 28.89 21.03 200 28-Jun-06 24.16 130 $5,103.75 -$889.62 -14.84%
MOT 12.07 17.65 265 24-Jul-06 18.98 130 $5,675.59 -$557.68 -8.95%
MSFT 24.42 28.57 200 21-Aug-06 24.64 130 $6,933.62 $823.79 +13.48%
ASEI 22.88 52.60 100 18-Sep-06 49.51 130 $6,382.72 $244.97 +3.99%
PWEI 6.55 32.86 150 13-Oct-06 33.29 130 $5,981.07 -$208.27 -3.36%
OVTI 14.61 12.49 300 13-Nov-06 16.47 130 $4,546.78 -$1,578.82 -25.77%
EPIQ 14.05 22.15 320 11-Dec-06 15.65 130 $8,600.90 $2,393.97 +38.57%
CRYP 14.02 25.34 200 10-Jan-07 23.92 130 $6,149.74 $214.62 +3.62%
VRGY 48.43 25.23 270 14-Feb-07 18.29 130 $8,266.11 $2,143.75 +35.02%
KG 16.77 19.96 260 7-Mar-07 18.49 130 $6,297.29 $333.78 +5.60%
OPMR 16.89 8.48 600 10-Apr-07 8.48 130 $6,174.01 -$130.00 -2.06%
11 symbols Total(AUD): $70,111.57 $2,790.49 +4.15%
The commision amounts include an allowance of another $65 for selling costs. There is no allowance for dividends received (around $300) or interest paid on the Portfolio Loan (currently around $400 a month).
At the moment the performance of this portfolio is largely governed by what individual stocks I have selected (semi-randomly) from the Lists generated on the www.magicformulainvesting.com website. For example, in the first trade I was tossing up whether the buy H&R Block or Hasbro toys - in the end I chose to purchase HRB (which has dropped nearly 15%). HAS in the same period has gained in price. Over a period of several years, once I am fully invested (with a portfolio of 18 stocks), the performance of my particular portfolio should be more in line with what can reasonably be expected from application of the "Little Book" methodology.
I'm quite happy with how the portfolio is performing, especially as the above figures are in AUD and the portfolio is held in USD. With the AUD hitting a 16-year high today, my foreign exchange losses have impacted the ROI to date quite significantly.
I was going to "mirror" my US stock purchases with CFD purchases of equivalent value via CMC Markets, but none of the US stocks I was considering adding to the portfolio today are actually traded by CMC Markets. I may either use the CFD trading the hedge my currency exposure, or perhaps use it to by a core index holding of QQQQ or Russel2000.
The paperwork from ESuperFund.com for setting up our new Self-Managed Superannuation Fund (SMSF) arrived in the post yesterday. A very thick envelope of "personalized" boiler-plate, with sixteen(!) little yellow tags showing where DW and I have to sign our names. I'll take a stab at wading through the details of the more relevant parts (the Trust Deed and the Investment Strategy) this weekend, between doing my university assignments and hiding Easter eggs* for DS1 to find, and hopefully we can get it all signed and sent back next week. Transferring DW and my super from BT super into the SMSF will save at least $1,670 in annual admin fees as far as I can tell**. I'll invest in the same asset mix within the SMSF as I had selected in the BT super scheme, just via Index funds instead of actively managed funds in some cases. If the capital gains tax liability caused by liquidating my stock portfolios isn't too high I'll also look at shifting my direct share investments into the SMSF as well, as there will be considerable tax savings over time within the super environment (especially NIL capital gains tax on super assets sold when the SMSF is in pension mode). You can't use gearing within a super fund (they're not allowed to borrow, except for very limited cases, such as when settling share trades) but, apparently it is OK to buy CFDs.
* They're actually lots of little packets of Trolli "bunny surprise" sweets (a bit like gummi bears), as DS1 is allergic to both milk and soy, so chocolate eggs are a no-no, even the "lactose free" ones. Just as well that he loves gummi bears
** The SMSF admin fee is AUD$599 pa. The BT fund charges a $53 pa member fee, plus an admin fee of around 1.5% pa. Our employer has arranged for a "member fee rebate" of about 0.9% pa but this still means that on the combined balances of DW and myself (around $370K) we're currently paying a net admin fee of around $2,270 pa to BT.
The login details finally arrived by email from CMC Markets today. After sending in another email to setup the initial password I was ready to install the MarketMaker software. The installation went well, with no hick-ups installing it under Windows XP. It took about 5 minutes to download and install. One annoying feature (which also happened when I installed Comsecs ProfessionalTrader software) is that the first time you run the installed application it checks for any updates - and finds heaps. Installing all the "updates" to the installed application took longer than the initial installation. It seems as though once a version is rolled out, it gets used as the installation version for ages. All subsequent updates are just cobbled together as they arise over time, so if you install the application a fair while after its been released there's a huge amount of outdated code to be replaced. A more customer friendly approach would be to keep the "installation" version always updated with the latest updates, so that new users wouldn't have to go through a lengthy update of their newly installed application.
Once it was finally ready to go, I started to have a play around. I doesn't have an intuitively obvious interface, but that's probably due to it providing heaps of functionality and trying to keep the default layout clean and simple. I had a quick read through the online manual, and I'll have to read it all the way through before starting to use the application to its full potential. CMC Markets has a "free 1 day course" available to new clients. I'm sure it will mainly be a lot of "how to easily make huge returns with absolutely safety" bumpf, but it might provide enough training on how to use the software efficiently to make it worthwhile taking a day off work to attend.
My first daily account update arrived by email from CMC Markets today. Nice to see the $1,000.00 balance with no fees taken out. There is an online account funding option available within the trading application, but you can only make payment by credit card and they charge a $1.50 fee per transfer. I'll do any funds transfers by BPay instead and save the cost. I still have to fill in and mail by bank account details to CMC Markets so I can get funds paid back out again.
Hopefully I'll have worked out everything by the start of next month when I'm scheduled to make my next monthly US stock purchase to add to my "Little Book" portfolio. I'll do a normal $5000 stock purchase through Comsec-Pershing, and at the same time duplicate the transaction trading a long CFD in the same stock via CMC Markets. As the US CFDs trade on a 5% margin, the extra cost will only be around $500, but it will, of course, be doubling my exposure to any rises and falls in the stocks I purchase. I'll do the dual trades for 18 months and compare the costs of both trading systems.
Just as well I didn't believe the CMC Markets Rep on Friday when he said that if I transferred the initial $1000 into my new account that day, an "automated" email with my login details would arrive on Monday... we'll see if the account email arrives tomorrow. I won't make an intial CFD trade until next month, but I'd like to install and "play" with the trading software asap.
Meanwhile some dividends were deposited into my account today, $442 from SUN, $144.60 from ASX, and $326.25 from QAN.
And I finally got around to setting up the automated payments of the minimum monthly amounts due on the HSBC and BankWest Credit Card accounts that I've taken 0% balance transfers from. I set up the minimum amounts ($300 for BankWest on a $12,500 balance transfer, and $270 for HSBC on a $10,000 balance transfer) to happen a few days before the due date each month to allow for when the due date falls on a public holiday or weekend. I'll still double check each months statement to make sure the payment will happen before it's due - I've previously had experience of a CC company changing the monthly due date without notice!
Aside from this I'm making slow progress sorting 2,000 rows of portfolio transaction data from my old Quicken backup into a capital gains transaction log. I'm 75% done so I should be able to finish it off tonight and merge it with my CGT spreadsheet I'd already setup with transactions since 2000. Hopefully the calculated final stock holdings will mostly reconcile with my current CHESS and margin loan account statements, so I won't have to go fishing through filing cabinets to verify 20 year old broker statements.
If I get everything reconciled by the weekend I'll be in a position to evaluate a few pending decisions around stock buy-backs, selling stocks and realising capital gains so I can move the funds into a SMSF, and what end-of-financial year arrangements I'll need to make regarding tax deductible loan pre-payments etc. in order to manage my taxable income and hence Capital Gains tax rates for this year.
After faxing in a copy of my driver's licence and a rates notice confirming my residential address setup of my new CFD trading account was completed on Friday. They require a minimum initial balance of $1000 to start trading, which I sent electronically from my bank account using BPay on Friday. Once the funds hit their system on Monday morning I should automatically be emailed my account number and initial password and could start trading that evening (trading US stocks will be available from 1:30 am - 8am AEST). I thought it was a bit strange that the account details aren't sent as soon as the account is opened, rather than waiting until receipt of a funds transfer, but it doesn't really make much difference in the end. I found a pdf file listing the 500 or so US stocks that can be traded using CMC Markets CFDs, and most of the ones I've bought so far for my little book portfolio were listed. The few ones that were missing are the smaller, more speculative stocks such as OVTI and CRYP. This will mean an additional filter when picking new stocks to purchase for my US Stock portfolio over the next 18 months.
I plan on buying a CFD for the same value of stocks that I actually purchase each month using my Comsec-Pershing broker account. After 18 months when the stock holding and corresponding CFD are sold I'll be able to compare the costs and realised gain or loss made using each system and decide whether I'll continue purchasing US stocks or just trade CFDs for US stocks in the long term. With CFD trading there's the extra risk of losing the money I've paid for the CFDs if CMC Markets went out of business, but as there is only a 5% margin required to trade US stocks this risk should not outweigh the benefit of significant savings in brokerage in the long term.
I've been building up a portfolio of US stocks (my "Little Book" portfolio) since the middle of last year. One of the problems of trading US stocks from Australia has been the relatively high brokerage costs - using Comsec-Pershing it costs AUD$65.00 per trade. E*Trade Australia charges even more, and I haven't been able to find any Australian brokers that will trade US stocks more cheaply. Some readers have recommended US-based brokers which are cheaper, but before I take that route (with the associated hassles around transferring funds in USD to a US brokerage before making trades) I've decided to experiment with using Contracts for Difference (CFDs). These are quite a popular tool for day traders, as you can gain market exposure with low costs per trade (as little as $1) and trading CFDs has a built-in gearing effect (usually the trades are based on a margin of between 5% and 20% of the stock value being traded). I don't intend to try day trading (I think it's a zero sum game, which generally just transfers wealth from the casual day trader to commercial traders), but it looks like it may offer a cheaper method to implement by US stock portfolio strategy.
I applied online for an account with CMC Markets on Friday, and today their representative phoned to request a fax of some identification (drivers licence and a rates notice) to finalise opening my account. As soon as this is processed I'll be sent a login and can transfer the initial $1000 required to begin trading. Although there is a normally a monthly fee of around $40 to use their trading software with live stock price data from the ASX, as I only intend to trade US stocks this data isn't needed and I won't have to pay any monthly fee.
Trades of US stocks are generally on a margin of 5%, so I should be able to buy a CFD to gain equivalent exposure to a US stock as my Comsec-Pershing $5000 trade for only $250. The minimum fee of $10 is high as a percentage of the trade value (4%), but is very reasonable compared to the underlying stock exposure (0.2% of $5000). I'm not sure that all the US stocks I've picked for my "Little Book" portfolio would be available as CFDs - only 541 "constituents" of the US market are available from CMC markets.
There's also a fundamental difference between buying stocks and trading CFDs - in the case of CFDs you are basically buying a promise from the issuing company, in this case CMC Markets. The CFDs issued by CMC Markets are not tradeable by any other CFD company, and if CMC Markets went out of business my investment in their CFDs would be worthless.
Anyhow, to replicate my actual US stock trades with Comsec-Pershing over the next 12 months (US$60K worth) will only cost me around US$3K to buy the equivalent CFDs, so it's not going to be a hugely expensive experiment whatever happens. If it works out I could save US$600 a year in trading costs, which would add directly to the ROI of my "Little Book" portfolio.