Australian Equities Portfolio

Holding BHP OZL SGM

The Australian equities market is considered to be a diverse mix of Commoditiy based equities with other key components made up of  financials, retail and discretionary.

Australian stocks indexes main drivers is large centered around the commodities markets and financials.

The portfolio since inception was set up to highlight two senarios, the first centres around the risk of taking risk, this means the risk of large positions.

With an opening balance of $10,000 the account has held several positions and today is 10% higher than the starting balance. With some stop losses taken along the way as the underlying equities market fell an overall 11.5% from the highs beginning the same week the account was started, it has been a baptism of fire.

This decline in the overall indicies highlighted the importance of position sizing and risk management to stemie large losses.

Position sizing is set so that should the stop loss be taken the account will lose about 2% of value. From this methodology the account balance swings will be limited. This portfolio is taken with a BUY and HOLD view to capture underlying trend movements.

The first CFD opening on the 3rd of September, was WOW woolworths, the position taken was 1000 CFD’s, shortly after the position was entered the 60 cent dividend was paid, so the related fall in price was offset by the dividend income ($600).

This position was taken to highlight the risk of risk, the position consumed almost $7000 of available margin, this left the account vunerable to large swings in value. Clearly the wrong approach.

Along the way WOW made a low at $27.06 from the entry price of $28.52, this equates to a total draw down of $1,460.0 or a whopping 14.6% of the $10,000 account.

At this review the position has lifted the account 12.8%, a reward for bad behaviour!

BHP was opened on the 6th September at $31.60 with a position of 100 CFD’s, while the price made a new low at $30.76 the overall position was $84 in drawdown, well within the 2% stop loss rule. With the current profit of $159 this represents 1.6% profit in the account.

A 100 CFD position in OZ minerals was also opened on the same day and made further lows to $8.06 from the $8.54 opening price, the draw was limited to $48.0, with the current profit showing of $81.00 this now represents 0.8% profit so far.

The last position to review is SGM Sims Metal also taken on the 6th September from the $12.64 open a further low was made at $10.70 a drawdown of $1.94 and almost a stop loss event. The stock has now moved into a small profit.

In summary the portfolio shows that large positions like the WOW can make great percentage returns, this type of oversize position can also bring the account into significant drawdown in the event of a significant market weakness. The smaller positions, while not showing exponentially large returns for the account tend to weather the down turns.

The three positions BHP , OZL and SGM have added 2.54% to the balance against the background of a market correction of some 11%.

Woolworths will be closed in the event of a reversal signal.

As this is a marathon and not a sprint, the account will build over time with proper risk management and position sizing.

Disclaimer

GAIN Capital Australia Pty Ltd, 100 Harris street, Pyrmont, NSW 2009 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

GAIN Capital recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com.au, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade.

You can follow my trading account at City Index here: https://www.cityindex.com.au/market-analysis/follow-garys-equity-trades/?trading-diary=trading-diary and the rationale behind the decision process by logging onto the Monday webinar here: https://www.cityindex.com.au/webinars/.