THE CFD SYSTEM BASED ON THE PROVEN SPA3 EDGE

The objective for creating SPA3CFD was to turbo boost returns from the already established and proven SPA3 trading system. When a medium-term trend is signaled, if available, a CFD could be traded instead of a stock. By trading both CFDs and stocks, controlled leverage is achieved across the entire portfolio.

SPA3 returns are proven through live trading to achieve 10% - 15% compounded per annum better than the ALL-ORDS over a period of at least 5 years. The publicly traded SPA Portfolio 1, as at June 2008, is outperforming the ALL-ORDS by more than 15% compounded per annum over nearly 7.5 years. This is nearly $300,000 more profit than the ALL-ORDS over 7.5 years from a starting portfolio of $100,000.

SPA3CFD research shows that the annual compounded returns would have been up to double that of SPA3, on average, over the same 7.5 year period, depending on the portfolio leverage factor.

The above schematic shows that with a portfolio leverage of x3, the return is 45% compounded per annum, on average across a number of researched historical portfolios. Over the same period SPA3 achieved 24% compounded per annum. During this period the ALL-ORDS rose by 8.5% compounded per annum.  Note too that the average Maximum Drawdown (i.e. the largest drawdown that the portfolio experiences during its lifespan) for SPA3 is around 18% while a SPA3CFD portfolio, leveraged at x3, averages a Maximum Drawdown of 24%.

The combination of the SPA3 Risk Management and Money Management rules, modified for leverage trading in SPA3CFD, will ensure that the amount of capital exposed to the market is tuned to the prevailing market conditions. This plays a major role in minimising drawdown and maximising portfolio growth when rising out of drawdown to new equity peaks.

This is achieved by the trader controlling the level of portfolio leverage and risk rather than the CFD provider dictating the overall margin to value ratio of a trader’s portfolio. The SPA3CFD trader chooses to trade their CFD portfolio at an overall leverage factor of 1.5, 2, 2.8, 3 or even 4 rather than at 10 or higher. Sophisticated SPA3CFD Money Management algorithms manage the leverage of your portfolio.

An example historical SPA3CFD portfolio from 1 January, 1999 to 31 December, 2006, traded at x3 leverage, is shown below. This historically researched portfolio achieved 46% compounded per annum.

The blue line is the marked-to-market equity curve (initial capital + realised profits) of the portfolio, the green line is the collateral (cash + realised profits) of the portfolio and the red line shows the margin invested in the market at any given time. The dips in the red line show when all leverage is removed from the market. The signals to alert the SPA3CFD trader to do this are 100% mechanical.

Note about Brokerage

The Maximum Drawdown was 23.13%.

All returns quoted above include brokerage at online broking and CFD brokerage rates and also include interest on CFD trades paid at 8% per annum.

Note about CFD Providers

SPA3CFD manages the overall portfolio leverage by executing SPA3 trades in both CFDs and equities. To achieve this there are some basic requirements that need to be in place:

  • Margin requirements for CFDs on the CFD providers list to be low enough to achieve up to x3 or even x4 overall portfolio leverage by holding combined equities and CFD positions in a single portfolio.
  • The ability for cash and equity holdings in the SPA3CFD portfolio to cross-collateralise CFD positions.
  • To achieve the requirements of points 1 & 2, the equities and CFDs must be traded from the same trading account.
  • It would be preferable that the same execution platform is used for both CFDs and equities. At time of publication ShareFinder is not aware of the existence of a broker offers the same account and a different execution platform. Also, using the same execution platform for both CFDs and equities will reduce the possibility a finger trouble in the heat of the moment.

By August 2008 ShareFinder will formally release SPA3 USA for trading USA equities. The natural progression for our products is to release SPA3CFD for the USA markets. If you are interested in trading USA equities then it would be preferable that you are able to do so through the same account and same execution platform that you trade your ASX equities and CFDs. After much research and meetings with various CFD providers, the only CFD providers / brokers that ShareFinder is aware of that can meet these requirements are:

  • Commodity Broking Services (CBS)
  • Tricom
  • Sonray
  • First Prudential

Commsec and E-Trade cannot meet any of the top three requirements. Our research shows that the margin requirements offered by Commsec will only allow a maximum SPA3CFD leveraged portfolio of x1.8.Of the four CFD providers that do meet the necessary SPA3CFD requirement ShareFinder recommends (CBS) for the following reasons:

  • ShareFinder already offers the SPA3 Managed Portfolio Service through CBS. CBS therefore has trained SPA3 traders on their team that know SPA3 and understand the entry and exit signals and the risk and money management rules.
  • CBS will offer new clients free off-market transfer of existing positions with their existing broker to CBS. Furthermore, for existing SPA3 traders, if a SPA3 exit signal occurs during the off-market transfer (which could take a few trading days), CBS will short a CFD of the stock (if a CFD exists) hence ensuring that the SPA3 exit price is locked in for the small additional cost of a CFD trade.
  • The CBS execution platform (Falcon Trader, which is the Saxo platform) already supports USA CFD and equities trading from a single account.
  • Whilst not the cheapest, CBS brokerage rates are very reasonable and are lower than Commsec and E-Trade.

At this stage, there is only one other CFD provider that will meet the SPA3CFD requirements in the future and that is CMC Markets when the integration between the CMC and Andrew West platforms is complete.