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Hi,
I am experimenting with the Cfd's for the first time.
I have written testing 'Buy and hold' algo that buys asset on the beginning and hold till end of the period.
What confuses me is very different result between equity and Cfd holdings.
In one case, I buy SPY and hold till end. The Return is is 344%. .
In second case, I buy Cfd SPX500USD. The return is 218%.
I thought returns on Cfd's for SPX should be very similar to returns on SPY if holding for the same period.
In attached algo you can see results..
Manav Trivedi
Hi Mislav, you can refer to what CFD(s) actually are and you will find that you are actually exploiting the difference in prices rather than the price itself, which will give much better returns. It works in a very similar way as an OTC trade would work, but is slightly different as compared to other methods of trading.
Mislav Sagovac
I have read articles on investopedia, wiki and some other sources. It doesn't seem complicated, from investor point of view. But, nevertheless, I can't explain above difference. You said Cfd's should have higher returns. But in this simple backtest it has lower returns.
Manav Trivedi
CFD is a type of trading in which 70% of traders lose money, so at an exploration stage if you're getting anything which is above an investment strategy, that would work.
Mislav Sagovac
Maybe I didin't post my question clearly.
I am confused why trading SPY gives much better returns than trading Cfd on SPX, when we buy and sell on same datetime ?
I would expect similar return, but return on strtagy trading SPY is much higher.
Louis Szeto
Hi Mislav and Manav
It is essential to understand that CFD is leveraged contracts, with (usually) a fixed spread between its bid/ask prices. So even if you're using 50% of your portfolio on a 2x leveraged CFD, it won't give you replicated results of the underlying asset because:
Best
Louis
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Mislav Sagovac
Louis Szeto ,
Thank you for reply. I think this explanation is close to truth. I am still amazed by the difference, but on long scales, maybe it is possible that bid-ask spreads make the difference. I haven.t use leverage in my algo (I set leverage to 0 and use SetHoldings(symbol, 1)).so I think this is not the reason.
Fred Painchaud
Hi,
I did not do the maths but it seems like SPX500USD is not calculated by simply tracking SPY, at all. See Section 3. shrug
https://www.oanda.com/assets/documents/178/OANDA_Europe_Pricing_and_Charges.pdf
Fred
Gustavo A
Thanks Mislav, Fred
The long-term result difference is much higher than I'd expect as well. The Section 3 notes are pretty insane. Given its buying and holding for the term, it looks like it's all the overnight holdings charge.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Mislav Sagovac
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
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