Hedging your portfolio by shorting with CFDs

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21

Was in 2011, so I’m allowed :crazy_face:

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22

Would you be able to provide the same interest fee comparison for going short on an index instead of a stock, maybe SPY/SPX? I’m assuming this info is easily retrievable for you hence I’ve asked for the favour.

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23
  • eToro, Short SPY (5x) about ~15% per annum (of the cash position, 3% of the leveraged position)
  • T212, Short SPX (20x) about 11.2% per annum of the leveraged position (224% of the cash position)
  • Plus500, Short SPY (5x), about 13.3% per annum of the leveraged position (66% of the cash position)

Hard to compare on different leverage multipliers, but in the case of eToro, where you can adjust the ratio, it is a linear scaling. Hence, if eToro were to offer 20x, it would scale to 60%/y cash = 3%/y full position. Which we can compare to T212, 224%/11.2% at the same ratio.

We can also compare eToro/Plus500 at the 5x ratio, as we can see Plus500 is a bit more than 4 times more expensive.

A bit too lazy to delve into the details of Interactive Brokers, but their CFD fees is 1.5% (above benchmark, currently at 0%) for all CFDs position; maybe up to 2.5% for smaller account. I believe 2.5% of the fully leveraged position, and I have no clue what ratio they offer.

Ranking would be

  1. IBKR
  2. eToro
  3. Plus500
  4. T212

Cheers!

Edit: these comparisons were made as requested on SPY or equivalent short. I know at least in the case of Plus500, their available leverage and fees may depends on the underlying security; T212 as well has different pricing for long/short of stocks/indexes/futures/currencies. Not sure about eToro :thinking:

Edit2: I hadn’t bothered checking, but eToro does offer SPX500, with a 20x leverage. Indeed the fee scaling holds up, beside minor rounding.

Plus500 offers an equivalent based on e-mini future of the S&P500, for a 20x as well, with quite lower fees; slightly less than 5% of the full position, or 98.6% of the cash position.

Ranking stays the same, even though Plus500 fees are significantly lower on a index product.

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24

Maybe this is just me, but I try not to hold CFDs for more than a day or two max. Shorter if possible. As another commenter pointed out, CFDs become very expensive very fast. They completely eat your profit. Personally I don’t use CFDs as a hedge, I just use them for a bit of fun when I have free time.

When we start talking about holding CFDs for weeks, I don’t think you get much benefit in terms of hedging. Just hold your diversified stock portfolio for a few months/years, and this is a good enough hedge. Your hedge here is time and diversification.

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25

Thank you for taking the time to draw this comparison, highly appreciated :slight_smile:

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