The markets are at an all time high in the US. And some of my students are fed up with only making money on Amazon and Apple and Microsoft. And have asked me for a higher risk, higher reward strategy.
So here it is. But be warned, it is higher risk as you will read.
You Want To Add More Risk for More Return To Your Portfolio
You have $20,000 risk capital for higher risk returns, aside from your safer pension and rainy day investments
Let’s assume 5% chance of being down 30% (in fact research data shows this – see https://t.me/pipspredator)
If we bought 300 shares in Microsoft which is $209 per share then that is a $62,757 worth of shares (300x209)
If it dropped 30%, ie 30%x$62,757, you would use up $19,000 aprox of your risk capital
BUT you don’t have $62,757 to buy the shares in the first place. You have $20,000
If we used a leveraged product like CFD/Spreadbet and bought equivalent of 300 shares in Microsoft, We would need a deposit, or margin, of $2,822 with the broker (plus over the course of the year funding charges for borrowing the other $62,757-$2,822
If Microsoft goes up $50 per share ((50/209) ie 25% per share we make $15,000 (300x50)
ie 75% on our risk capital of $20,000
If it drops 30%, you are out of pocket $19,000 (30% of $62,745)
So what are the risks? You lose all your risk capital very quickly as Microsoft drops
There is a flash crash
It drops more than 30% and you are liable to more than your entire risk capital
You get the calculations wrong
You don’t account for broker interest charges (speak to broker)
Your broker is not FCA/SEC regulated/trustworthy
The broker changes the ‘margin rules’ and you don’t get the notification so they close your position
Anyway, I’ll say it again, high risk.
