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Turbo-Charge Your Returns In the Market With The CFD Strategy

Aug 27, 2008
Would you be amazed if I told you that it is possible to make 36% in annual returns by just buying the market indexes? So, how is this possible if the indexes have only been returning only 10%- 12.08% in compounded returns? The answer is by using a powerful strategy such as CFDs (Contract for differences) and Technical Analysis to turbo-charge your returns.

Technical Analysis is the process of studying securities (e.g. stocks) by analyzing statistics generated by market activity, such as past prices and volume. In so doing, you can identify patterns that can accurately predict future price movements.

What are CFDs?

Contract for Differences (CFDs) is an agreement between two parties (your CFD broker and you) to exchange at the close of a contract, the difference between the opening price and the closing price of the underlying stock CFDs allow you to buy or sell a large quantity of stock (or index) by putting up a small sum of investment. You can find out more about CFDs by going to www.cityindexasia.com.

So, why would the CFD broker allow you to control US$100,000 worth of Index with just US$750? Well, you have to pay financing charges for the right to control the large value of stock. The financing charges you have to pay are 2% above the London Inter-Bank Offer Rate (LIBOR). The last I checked, the LIBOR was 5.3% which means that the financing charge you pay is 7.3% (5.3%+2%) a year. At first, the thought of paying financing charges of 7.3% per year may seem ridiculous (given that the S&P only returns 10%-12.08%), but if you sit down and do the sums, it becomes worthwhile!

Using CFDs to Boost Your Rate of Return

I use a financial instrument known as Contract for Differences (CFDs) that allow me to buy huge amounts of the S&P 500 Index using only a small amount of capital. In fact, with CFDs, I can buy US$10,000 worth of the S&P 500 Index by just putting up a capital of 7.5%. In this case, I just need an initial investment of US$750 to control US$10,000 of the S&P 500 Index.

How CFDs can Earn You a Return of 36% on the Index

Let's see how buying Index CFDs compare to buying the Indexes directly (i.e. through the Index ETFs). Imagine if you had US$1,000 to invest. If you just bought the S&P 500 Index ETF (i.e. SPDR), you would get an annual return of 10% on average (without dividends reinvested). If you bought the S&P 500 CFD, a US$1,000 capital would allow you to buy US$13,333.33 of the S&P 500 Index (i.e. US$1,000 / 7.5%= US$13,333,33Remember that by buying the CFDs, you pay a financing charge of 7.3% a year. So, your actual return would be 10% - 7.3% = 2.7% a year. Although a 2.7% return may seem really miserable, bear in mind that it is 2.7% of a huge amount of stock (i.e. 13.3333 times of your initial investment) In one year, your actual profit would be 7%xUS$13,333.33=
US$360.

Since your initial investment was US$1,000, your rate of return would be US$360/US$1,000 = 36%! This is precisely how CFDs can allow you to control a large quantity of Index and triple your rate of return

Before you get all excited, let me throw in a few words of caution. This strategy is not recommended for novice investors. In fact, I strongly suggest you do not attempt to replicate what I am doing unless you first attend my Wealth Academy live training or any other credible investment seminars or workshops. When executed improperly, investing in CFDs can be extremely risky and you could lose even more than your entire investment capital. However, when thoroughly understood and properly executed, the combined use of CFDs, technical analysis and economic forecasting can give you super high returns with minimal risks. You need to have a good knowledge of investing before applying this strategy.
About the Author
Adam Khoo is an entrepreneur, best-selling author and a self-made millionaire by the age of 26. Discover his millionaire investing secrets and claim your FREE bonus chapter of his latest bestselling book 'Secrets Of Millionaire Investors' at Secrets Of Millionaire Investors.
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