How to Boost Your Investment Return

Friday, 4 February 2011

If your investment returns are not satisfying enough, making smart use of leverage is worth a consideration. There are several reasons why using leverage can be a solution to yield higher returns:
  • You believe in your strategy but have little money available
  • Less money is tied up, allowing participation in more markets
The most liquid solution to gain exposure in the S&P 500 is the E-mini futures contract. It has a multiplier of 50, which means that the market value of one contract is 50 times the current price (currently 1160 x 50 = 58,000). If the S&P 500 rises or falls by 10 points, you would gain or lose $500 with just one futures contract. Obviously, they are not the outright ideal solution for every investor due to its size.
 
 

Therefore, leveraged ETFs are appealing and often very liquid. A double leveraged ETF for the S&P 500 is ticker symbol SSO (its inverse is SDS). When trading ETFs on U.S. stock exchanges, the Pattern Day Trader rules apply, preventing more than 3 day trades (opening and closing within the same day) in 5 business days.

If you are living outside the U.S., you might be aware of CFDs (short for "Contract for Difference"). They behave very similarly to futures, but can be day traded at will and are subject to a market maker. One CFD on the S&P 500 costs a mere $1,160 at current price levels. So if you want to have leverage with a small account in combination with day trading ability, looking for a CFD broker is an idea. Do know that using leverage generally comes with higher risks.

Trend Architect provides a subscription-based trend following system which combines the best of the investing and trading worlds. Its trading signals allow you to follow trends lasting weeks to months but still apply very strict risk management.

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