First successful pair trade on SAXO

As though every streak of good luck must come with some streak of bad luck, a big fat cockroach came flying into my room as I closed my trade position on a gain last night.

SAXO's platform is pretty sophisticated its functions and quite user-friendly. There are all kinds of orders that traders could enter, and they have a buffet of security types for trading (CFD, Options, ETF, forex and much more) on the platform. I opened a small position as a test-water trade to see how I can execute CFD and monitor it. I made a mistake by shorting only 10 shares of the CFD stock initially without realizing that the commission for CFD trades is USD9.99 (which means I need a dollar drop to break-even... eyes 'tak' stamps TT). I had a trading plan in mind but got to admit that it is not perfect and my execution was far from well done.

It's a pair trade setup. The 2 same-sector stocks I picked (let's call them A and B) were based on charts comparison and I examined the extent of their price movements. I should have calculated the correlation coefficient before my trade but I did not - mistake no 1. Their correlation was 0.74 based on a YTD correlation, not that high but good enough. Stock A was spotting an obvious downtrend, of which I estimated a larger extent of drop for stock A versus stock B which has a downtrend that was less steep. I shorted A using CFD and longed B using normal EQ (to save on commission) with 50 shares for both positions and very ready to pay school fees should my trade set up fails.

Time frame: 1 week


Watching the candles moving against you and prices ticking up and down every few minutes can be a little unnerving. So I just dropped in to check on the prices and charts for less than half an hour each night before sleeping to make sure things are not spinning out of rail. On one of the night, stock A's high hit a high for that week and I almost wanted to close the position, but I held back and went to bed. It hasn't hit my stop loss. Discipline...

Yesterday my patience paid off - stock A did a nice dive when the US market opened. That was when I decided to close both my positions and not be too greedy. One thing I could not come up concretely in my trade plan was the take-profit point (in this case, that's how long to wait for how far a price plunge, since I was betting on the short). There was a myriad of reasons - from the trade war progression to the company releasing it's earning results soon this month and my trading psychology (constantly pulling myself away from hope analysis while controlling my itchy finger).

By the way, CFD trades uses margin account and if not careful it can be a risky deal. SAXO has a margin utilization gauge bar at the bottom which will show you how much margin (in %) you are currently utilizing based on your open positions. Watch the bar and make sure you have enough cash to back it up so that you don't end up having to force close your position in a margin call. There is also this thing call daily inter-bank interest rate which is charged to your account every day that your CFD position stays open (yes, even over the weekend) and it increases slowly every few days. From what I see in my CFD Finance Details report, it starts from 1.02%. For more details, you could read this article on Holding Costs or look at the SAXO's charges FAQ. I shall not bore people with the mathematics.

"Trading is playing a game of odds. Act only when the odds are in your favour."



I have found the knife that can cut both ways - now I need to hone my skills to use it properly so that I don't accidentally cut my hands with it. Still, I believe in the element of luck.

I have recently read a book by Robert Kiyosaki and Donald Trump (no no I am not a fan yet) titled "Why we want you to be rich?". There's nothing in-depth about the contents so forget about learning on investments as it talks mostly big ideas, like how you should get yourself some financial education. One thing that really caught my attention is - they prefer to invest in stuff that they have control, and of course an edge, over. For them, that would be businesses / real estates rather than stocks. That is because there is little we can control about the market. How true.

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Comments

  1. Rainbow girl,

    Not bad ;)

    I remember I made a mess of everything on my first pairs trade :(


    Glad you are using a live account and not a simulator to test things out. No skin in the game, no real lessons.


    Intersting.

    Pairing CFD with plain vanilla equities trading?

    That means you are not using OCO order type. Unless SAXO platform is so sophisticated, if your CFD position got stopped-out, how do you get out of your equity position at the same time?

    Curious. My current broker's platform can't do it.


    Have fun! Fighting!


    ReplyDelete
    Replies
    1. Hi SMOL,
      If my CFD short gets stopped out, that would means my equity long position should not be faring too bad even if I didn't get out at the same time (with the correlation). I am not using OCO order type.

      Still long way for learning...

      Ah sheesh... my stock A plunged some more today. >.<

      Delete

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