CFD - No Guts, No Glory (Part 2)

Happy Chinese New Year!

As the title suggest, this post is a continuation of my previous post on Forex trading.

My first encounter with Forex trading occurred more than twenty years ago. A friend had recommended it as a way to earn an alternative income and for a short while, things were good. Sadly, it all ended when when the owner of the firm absconded with all the investors' deposit.

Back then, we were given a couple of days of training on Forex and worked in a small office in Shenton way. Every night, we would turn up to be briefed by the analyst who would show us the charts, trends, support and resistance points for the day. I trade USDJPY week nights between 8pm-2am. Technology was primitive and we had to enter our trades by passing paper slips to the traders who are licensed to execute our orders.

Fast forward to 2017 and while the fundamentals are the same, technology has advanced by leaps and bounds. It is easier now but at the same time, more complex and at a faster pace.

Trading in USDSGD can be a little tricky as SGD is NOT one of the 6 major currencies the USD is balanced against (US dollar index), nor is it one of the 8 major traded currencies in the world today. That being said, the reverse is true that it would not be as heavily speculated/ influenced as compared to the other currency pairs. Forex is not for the faint hearted and it is highly volatile, complex and merciless to the unprepared.

In this post, I will cover two resources where you can obtain all the analysis you need for Forex trading; especially if you are trading USDSGD and has a hard time coming across information that may be useful to you.

Investing.Com

Investing.Com is my primary resource for Forex trading. It provides real-time analysis and recommendations, as well as regular write ups on trends and current affairs. It is also available as a mobile app (in-app purchase to remove ads).



Summary for USDSGD on Investing.Com

Investing.Com provides you with the summary of technical trends in different time intervals, the corresponding action recommended using different indicators, as well as the support and resistance points. Their mobile app does an excellent job presenting the indicators in a single view.


Investing.Com Mobile App

If you are not good with reading charts, Investing.Com makes it really easy for people like us 😀 For example, a number about 70 on the Relative Strength Index tells you that the market is overbought and a number below 30 tells you it is oversold. Investing.Com simply tells you to sell or buy based on what that index is.

Relative Strength Index is a common gauge for investing. DailyFX has a write up here on how to use RSI indicator for Forex trading.

Trading Economics

Next on my list is Trading Economics. Not a frequent read but a great place to get a summary of all your monthly/ quarterly key economic reports and forecasts.


Singapore's Economic Indicators on Trading Economics


Singapore's Economic Forecast and Outlook from Official Sources


Economic Calendar of Upcoming Reports

On a More Cautious Note

Now that you are introduced to these resources, it is important to understand that none of these tell you where the market is heading with 100% certainty. RSI, Stochastic Oscillator, Bollinger Bands etc are all lagging indicators; meaning they tell you where the market was and at best, where it could be going.

We track these indicators not because they tells us where the next pot of gold will be but where the pitfalls are. Forex is 95% risk management and most amateur day-traders fail because they do not have a risk management strategy or because they did not follow through with it. The importance of risk management is true for all kinds of trade but especially so with Forex.

The following are two defensive trading strategy I was taught

1. Buying only when the market is oversold and shorting only when it is overbought; minimising the risk of the market moving against you. That is, in addition to all the other indicators pointing in the same direction.
2. Locking your profit and loss on an open trade when you leave your desk using an opposing trade of the same amount so that regardless of where the market moves, your profit/ loses are protected/ minimised. 

That being said, it all depends on the individual; and so, I urge you to read this and formulate your own trading strategy before you throw your savings in Forex.

The following are additional reads and resources that I would recommend.

• Richard Lee's write ups on Forex must-knows
• Impact of GDP on currency (here)
• Impact of Trade Balance on currency (here)
• Using technical analysis - Moving Average Explosions (here)
• Using technical analysis - Golden Cross (here)
• Trading Economics on Singapore Indicators (here)
• Kathy Lien's articles on current Forex analysis and opinions
• Marc Chandler's articles on Investing.Com based on historical technical analysis

Do you know of other resources that would be useful to Forex trading? 

CFD - No Guts, No Glory (Part 1)

I wrote about Contract for Difference (CFD) a couple of days ago and how it has potential for great earnings while it carries a higher risks due to its leveraged nature. However, if that's your cup of tea, then you should really look at SimplexFX if you are not already on it.

SimpleFX is an extremely powerful and yet easy to use platform for CFD trading against multiple types of assets; ranging from forex (currency), cryptocurrency (bitcoin), indices (DJI), commodities (oil), precious metals (gold) and equities (APPL). It's a one-stop shop for CFD!

Once you get onto SimpleFX, it automatically creates a demo account for you. To trade, you will need a live account and creating one is simple and easy; just follow the onscreen instructions and you cannot go wrong. From there, SimpleFX offers a number of choices for funding your account.

Funding options for SimpleFX

If you are based in Singapore,  I suggest you fund it through Telegraphic transfer. It will take somewhere between 30 mins to 8 hours depending on the size of your transfer. Once funded, you can begin trading immediately. Below is a screenshot of what you will see as the 'dashboard' or 'trading wall' of SimpleFX.

SimpleFX Trading Wall/ Dashboard

There are numerous write up that already talked about SimplexFX and you can also find a number of guides on using SimpleFX. Therefore, I shall simply cover my experience on using SimpleFX in this write up. Feel free to hit me up if you have questions too!

In the example above, I have tiled my charts on my live account but you can also arrange them in tabs.

The chart tells you everything! 

SimpleFX draws a line to indicates where your open price whenever you place an order. The current price is marked by solid lines, green for buy and red for sell. You're profitable if the red line keeps above your greens and the green line keeps above your reds. That's it.

Your account details (balance, profit, margin, equities etc) are are all visible at a glance.

In addition, SimpleFX also provides advanced charts (free)!

SimpleFX is also extremely easy to use 

With 'one-click trading' enabled, you can place orders by simply clicking buy or sell after changing the trade size. 

One-click to Order

Similarly, you can edit (pencil) or close your orders (x) with one-click.


One-click to Edit/ Close Positions

What I love most about SimpleFX is the margin level indicator at the bottom left. Since CFD technically has no expiry and is dependent on your margin allowance. This indicator is an important and useful information to have on display.


Margin indicator

You do not have to manually calculate how much margin you have left, SimpleFX does it for you. In fact, if you are running low on margin, it automatically prevents you from opening up more positions and over-leveraging!

Bonus

All these functionalities are on mobile too! You can download the iOS version of MetaTrader 4 and connect it to your SimpleFX account to start trading. You can find the guide on connecting to SimpleFX here but basically, you will need to reset your password and connect using our account number.

Summary

I have been using SimpleFX for a while now and am very satisfied with the result. Below are some pointers on CFD trading that you can consider.

• Trade in only assets that you are familiar with. For example, USDSGD (forex), BTCUSD (bitcoin) or XPDUSD (Palladium). The reason is simple - you are consciously and subconsciously aware of news that affect the currency movement (i.e. GDP, inflation control measures etc)
• Trade in small steps and keep your margin level above 100% when opening up new positions. Target small profits but accumulate them through multiple trades
• If you're uncertain of the market direction or when the market goes sideways, use a butterfly spread as your trading strategy.

As a standard disclaimer, there are risks with all kinds of trading and especially so with CFD. Deposit and trade only what you are prepared to lose.

Note💡Turning on FIFO will allow you to enter opposing trades. Otherwise, SimpleFX will automatically consolidate your orders.

Important❗️Take note of your margin level. SimpleFX will automatically close out your largest order if it drops below 30% and all orders if it drops below 5%.

Important❗️If you have to hold your trades overnight, take note of the Swap (rollover) charges. SimpleFX has a higher swap rates than most trading sites (especially on Bitcoin) that can easily eat up all your profits.

A Better Investment for Passive Income (Part 2)

Voya Global Equity Dividend and Premium Opportunity Fund (IGD), formerly known as ING Global Dividend Fund, had been my primary CEF holding until recently.

• Period of accumulation: 8 years
• Highest price paid for each share: US$13.50
• Lowest price paid for each share: US$6.30
• Average price paid for each share: US$6.70

Tip💡It is important to average down your holding to keep it inline with the current price for capital protection. The best way to do this is to set aside your monthly savings and acquire new shares on a regular basis.

I spent the first few years holding on to my initial investment and watch anxiously as both share and dividend price drop steadily before I started to average down my holdings. When I sold my holding, I recovered my invested capital and made a little more; not including the dividends I collected over the 8 years plus and the appreciate of USD. In total, my ROI is somewhere around ~92%.

In my next post, I will talk about some of the resources I use to evaluate equity investment.

A Better Investment for Passive Income (Part 1)

I met with my personal banker a few months ago; a nice, intelligent chap who is driven and hardworking. To cut the story short, our meeting ended shortly after he introduced a couple of investment options and I asked which of them offer returns in excess of 8% per annum.

For comparison, your standard savings account pays between 0.05% to 0.4% per annum. That's $40 every year for for every $10,000 you leave in your bank account. What if I say I know a way to make 37x of 0.4%? I bet I have your attention now.

I discovered Closed End Funds (CEF) more than a decade ago and they formed the larger chunk of my investment portfolio up until recently. Investopedia explains what a CEF is but in short, it is a mutual fund that offers higher dividends (monthly/ quarterly payouts) with little-to-no capital gains (appreciation of share price).

Below are two CEF currently in my portfolio. Charts are added only for aesthetic value :)

Cornerstone Strategic Value Fund (CLM), pays a monthly dividend of US$0.23 (before tax) at a price of US$14.90 a share. This gives you a return of 18.5% per annum.

Oxford Lane Capital Corporation (OXLC), pays US$0.60 quarterly  (before tax) at a price of US$11.02 per share for a return of 21.8% return per annum

As you can see from above, CEF are great investment tool for generating stable passive income with significantly lower risk than investing in equities. 

Who should invest in CEF?

If you are currently employed and does not have the "freedom" to track the stock market. CEF is a great way to park your money aside and let it bloom on its own. 

If you have large amount of savings sitting idle in your bank or wads of cash rolled up in your Milo tin can. Definitely!

If you are wondering if there are better options than buying endowment plans or topping up your CPF OA/ Special account for that paltry 4% (well, it's capital protected). Maybe. It depends on your risk appetite.

Who should not invest in CEF?

What you lose with CEF is opportunity cost. Thus, CEF is not for you if you are a savvy investor who can make more through other investments. 

Here are some tips💡for investing in CEF

• CEF depreciates in capital more often than they appreciate. As such, the common strategy is to average down your holdings on a regular basis to keep it inline with the current share price.
• Some funds pay monthly dividends versus quarterly dividends. Monthly dividends are smaller and hence, capital depreciation during ex-dividend is usually unnoticeable.
• When choosing CEF, take note of it's net present value (NPV) and its reputation for paying out dividends predictably. CEFConnect is a great site for finding those information. In addition, you can read up the fund at Yahoo! Finance and download the historical performance the fund.
• Invest in the CEF before the ex-dividend date to receive a payout but the lowest price to get in is usually on the ex-dividend date itself.
• The upside to investing in CEF is stability but you will need to pay a 30% tax to the US government as dividends are classified as income.
• Low risk does not equate to no risk. Investing differs from gambling when you make informed decision based on facts and historical data.

Advanced CEF investing

There a couple of investors I know personally who moves between funds to maximised their capital returns. Doing this requires impeccable timing, precision and an uncanny familiarity with the  dividend calendar. Most of them pick 2-3 CEF and cycle through them monthly; selling on the ex-dividend date and making in excess of 40% returns on capital annually.

I am not smart enough for that. 

Once again, I have intentionally kept this post short. Feel free to drop comments, ask me any questions you might have on this topic or if there are topics you would like me to write about.

Have a great week ahead!