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Tuesday, 2 March 2021

Stopped shorting Tesla and switched from buying Alphabet to ASX200 CFDs

My recent brief foray into day trading was profitable overall, making some net gains by shorting Tesla (TSLA) while losing a little bit buying alphabet (GOOGL) just before it dipped in price. I'm not sure if Tesla will continue to weaken towards a more realistic p/e ratio or if the previous enthusiasm for this car-maker-priced-as-if-it-were-a-tech-company returns for a while. Google may well continue to rise (at least until there is an overall market correction), but it has also seen incredible gains over the past last March, so could just as easily drop back to 1700 than continue to rise beyond 2000. I also only started buying alphabet because it has a tiny fraction of its value tied up in SpaceX - which is a pretty stupid reason to buy into a stock when you think about it.

Overall I've decided to stop playing roulette day trading for a while, and instead have just bought a small long position in the ASX200 via the purchase of 50 iShares MSCI Australia Index Fund CFDs at $25.780 on 26 Feb. I'm currently down -20.50 USD on this trade (-0.4 per CFD) due to the market sell-off at the end of last week, but as I have large trailing stop loss set at -4 points (currently set at $21.78), the market would have to drop 15% for the position to be closed out. I'll just leave the long position in place and hope to gain from any long term increase in the ASX200 index over the next few years.

The 50 CFDs had a position value of $1289 USD, but I think the required margin is only 7.5% (A$118.63), so the minimum trade commission of $15USD was a quite hefty impost (the commission rate is only 1c per CFD, but the minimum commission makes small trades uneconomical). So this sort of trade only makes sense if done as a buy-and-hold highly geared strategy, unless you are trading a large dollar amount. Daily interest charged on this small open position appears to be around A$0.11 per day.

So if the Australian share market rose 10% over 12 months, I would make a gain of around A$160 and have been charged around $40 in interest charges. Given the large minimum commission for this trade and the low ratio of required margin to my CityIndex account balance (currently around A$1,600) I probably should have traded 200 or 250 CFDs rather than 50. I'll probably use the 'spare' capital sitting in this account for some further day trading if and when an obvious opportunity arises.

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