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Saturday, 19 July 2008

CityIndex CFD Portfolio

I decided to create a portfolio of CFDs for the ASX20 stocks (top 20 Australian listed companies by market capitalisation), exlcuding the financials. This provided a list of ten stocks and I bought enough units of each stock CFD to give them equal weight in this portfolio. Overall the contracts have a value of approx. $3,000 worth of shares, and the required margin is around 10%. This used up approximately $300 out of the $400 account balance I had before making these trades. Combined with the $100 'credit' allowed on this account it means that these stocks could drop by around 8% before my account would be liquidated (and I'd end up owing CityIndex $100). On the upside, if the market recovers from here, a 10% gain would boost the value of these stocks by around $300, giving me a ROI of around 100%. It illustrates the extremely geared nature of using CFDs for "investing" - hence the reason they are mostly used for speculative day trading.

It will be interesting to see how the interest charges work out in practice. In theory interest is charged on the entire value of the CFD contract (not just the margin value), and the rate is a few percentage points above the RBA overnight cash rate. However, in practice interest charges are debited daily, and on the small amounts due each day on $3,000 worth of CFD contracts rounding to the nearest whole cent could have a significant effect. After one month I'll add up all the interest amounts and work out the effective interest rate being charged. I'm hoping to just hold on to these positions for a long period (rather than actively trading), so the interest charge will be important.

After the latest trades my CityIndex CFD portfolio is as follows:

Currency AUD
Cash Balance 411.56
Open Equity -14.72
Net Equity 396.84
Credit Allocation 100.00
Margin Requirement 286.89
Trading Resources 209.95
Account Summary
AUD 484.49
USD -85.05

CFD Trades
17 Jul 2008 BHP Billiton (AUD) CFD___ Buy Market _8 @ $38.03 $304.24
17 Jul 2008 Brambles Industries CFD__ Buy Market 44 @ _$7.90 $347.60
17 Jul 2008 CSL CFD__________________ Buy Market 10 @ $34.94 $349.40
17 Jul 2008 Foster's Group CFD_______ Buy Market 75 @ _$4.61 $345.75
17 Jul 2008 Rio Tinto (AUD) CFD______ Buy Market _3 @$117.16 $351.48
17 Jul 2008 Telstra Corp CFD_________ Buy Market 80 @ _$4.30 $344.00
17 Jul 2008 Woodside Petroleum CFD___ Buy Market _5 @ $59.24 $296.20
17 Jul 2008 Woolworths (AUD) CFD_____ Buy Market 14 @ $25.50 $357.00
17 Jul 2008 Wesfarmers CFD___________ Buy Market 10 @ $32.53 $325.30

Although the US and UK markets were up on Thursday night, the Australian market dropped on Friday - mainly due to the resource stocks which are a significant part of this portfolio. Therefore the portfolio had lost $14.72 the first day. If the Australia market doesn't bottom out soon this could be a very short-lived experiment.

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