17-10-2024, 09:52 AM
To be clear upfront trading is not for everyone and most will lose their money trading. So I would say it's a bad idea for most people to embark on trading. If you want youbdo start with a small amount that you can afford to lose all.
However , if one decided to trade, it makes no sense to do it without leverage as the potential returns will be too small.
Companies that offer you products for trading make from spread commission and interest from loans.
So befoee you make money younalrready have to pay a fee.
Big professionalls like banks and hedge fund have access to the futures market where they can trade for negligible fees relative to their position size. Small traders don't have this option..
We are left with several instruments for trading.
Let's start with CFD.
![[Image: foqLfvJ.jpeg]](https://i.imgur.com/foqLfvJ.jpeg)
CFD allows you to leverage 5x and some people use it for hedging. For example, if you are holding 1M of stocks in the volatile HK market and cannot sleep at night you can neutalise your exposure by shorting 1M worth of CFD with 200K deposit. The round trip cost is $250. Why you do thisbis simplicity you may be holding 20-30 stocks on the HKEx The round trip cost is also very cheap 0.025%. However there is cost for holding overnight like interest since you borrow to leverage annualised at 6%.
Recent yrs DLCs has been made popular by SocGen in Singapore. The cost of trading is much higher but the leverage can go from 2x to 7x . Recently they launch DLC for big cap US tech firms commonly known as magnificent 7.
What do I think of DLCs? It is a lousy produce for a few reasons.
1. The spread is big vs CFDs.
2. The cost fo trading is very high you pay commission like you do normal stocks.
3. The the market sometimes expand the spread in volatile markets and you pay heftty price.
4. It is rebalanced everyday and there is something called volatility erosion that can be large. If the market swings up and down 5% a day then go back to where it started after 10 days your loss can be as high as 5-10% even though the underlying stock is back yo where it was.
The last way to trade is put and call options.
There calls and puts options on the SGX are horrible products worse than DLCs. It is actually a scam.
1. While options legitimately have premiums and delayed time towards expiry, the ones traded in Singapore have very high premiums set by the market maker which he decays to zero towards expiry. Because retail investors can only long and not short the options there is thjs huge loss build into the products.
2. The US options market is more correctly price because anyone can buy or sell options. If them premiums is too high many will come in to sell and bring the premiums down. In Singapore the market maker sets the price and he controls the premium he earns. ...there is nobody to correct the mispricing.
What are your views and experience on the 3 products?
Hope you can share.
However , if one decided to trade, it makes no sense to do it without leverage as the potential returns will be too small.
Companies that offer you products for trading make from spread commission and interest from loans.
So befoee you make money younalrready have to pay a fee.
Big professionalls like banks and hedge fund have access to the futures market where they can trade for negligible fees relative to their position size. Small traders don't have this option..
We are left with several instruments for trading.
Let's start with CFD.
CFD allows you to leverage 5x and some people use it for hedging. For example, if you are holding 1M of stocks in the volatile HK market and cannot sleep at night you can neutalise your exposure by shorting 1M worth of CFD with 200K deposit. The round trip cost is $250. Why you do thisbis simplicity you may be holding 20-30 stocks on the HKEx The round trip cost is also very cheap 0.025%. However there is cost for holding overnight like interest since you borrow to leverage annualised at 6%.
Recent yrs DLCs has been made popular by SocGen in Singapore. The cost of trading is much higher but the leverage can go from 2x to 7x . Recently they launch DLC for big cap US tech firms commonly known as magnificent 7.
What do I think of DLCs? It is a lousy produce for a few reasons.
1. The spread is big vs CFDs.
2. The cost fo trading is very high you pay commission like you do normal stocks.
3. The the market sometimes expand the spread in volatile markets and you pay heftty price.
4. It is rebalanced everyday and there is something called volatility erosion that can be large. If the market swings up and down 5% a day then go back to where it started after 10 days your loss can be as high as 5-10% even though the underlying stock is back yo where it was.
The last way to trade is put and call options.
There calls and puts options on the SGX are horrible products worse than DLCs. It is actually a scam.
1. While options legitimately have premiums and delayed time towards expiry, the ones traded in Singapore have very high premiums set by the market maker which he decays to zero towards expiry. Because retail investors can only long and not short the options there is thjs huge loss build into the products.
2. The US options market is more correctly price because anyone can buy or sell options. If them premiums is too high many will come in to sell and bring the premiums down. In Singapore the market maker sets the price and he controls the premium he earns. ...there is nobody to correct the mispricing.
What are your views and experience on the 3 products?
Hope you can share.