CFD Trading - My 2007 Results

OK, CFD trading is a bit offtopic for the Forex blog, but as many Forex brokers also offer CFD trading services and it is in a lot way similar to Forex trading (high leverage, MetaTrader platform, no dividends), I thought that it would be interesting to share my results for 2007.

I've decided to use standard demo account of $10,000 solely for CFD trading in January 11, 2007 with the condition to close all positions before the end of the year and see the results. I've closed the last position last Friday, before entering the low liquidity market pre-Christmas period.

Unsurprisingly, the minority of the losing positions outweighed the majority of winning ones. As I was a total newbie to CFD at that moment, my first several positions were badly thought out and planned. So here are the stats:

Total Positions: 26
Profitable Positions: 14
Losing Positions: 12
Total Profit: -$800.10
Total Profit, %: -8%
Average Profitable Position: $417.86
Average Losing Position: -$554.17

Most profitable symbols: #t (AT&T), #mcd (McDonalds), #ibm (IBM).
Most losing symbols: #aig (American International Group), #c (Citigroup), #jpm (JP Morgan Chase).

And yes, all the trades were long (I think there is no point to go into long-term short positions in the bullish stock market). No surprise here - the biggest losers are related to the financial sector, which experienced a very bad year; biggest winners are from IT and consumer's sectors that wasn't disturbed by the subprime lending slump.

When I opened positions I've used the financial ratings from the various on-line agencies as well as my own vision of the company's future (that usually proved wrong resulting in the major part of my losers). Stop-loss was usually set to some psychological support level (also wrong, technical support levels with lower loss level proved to be better), take-profit was set the recommended target level or slightly below (in most cases it worked fine).

After six months of CFD trading I started to understand my mistakes and tried to improve my strategy. So I've came up with these important "cornerstones" of leveraged CFD trading:

1. Use Alpha and Beta parameters as the indicator of the stock potential (I've used the ones from MarketEdge.com).
2. Don't buy a symbol if some major financial institution states some real reasons against it, or if it has a rating below A.
3. Stop-loss shouldn't be greater than your take-profit.
4. Close positions that are in a negative zone for more than a month - it's better to free up some margin to buy a better symbol, there are plenty of them.

I will be trading CFDs for the whole next year too and I will probably start a separate real trading account specifically for such trades. I hope my 2007 experience will help me to gain at least as much as the raw S&P 500 index in 2008.

EUR/USD Unconcerned with U.S. Employment Data

EUR/USD was mainly ranging today as the markets were undecided whether it is going bullish or bearish expecting the release by U.S. BLS on the November employment situation. After quite optimistic release came out dollar bulls took their ride for a while, but then euro bulls started to push EUR/USD back up keeping it slightly above the average daily range.

Nonfarm payrolls - the main indicator of the U.S. employment situation was at 94,000 in November - an expected continuation of the last month 166,000 increase. But analysts were expecting just 70,000 growth, so the dollar now has some good news to grow on.

Unemployment rate left at the same rate as in October - 4.7%, while markets expected growth to 4.8%. Average hourly earnings increased by 0.5% compared to 0.3% - the average forecast for this indicator.

EUR/USD Retraces After Bad Fundamentals

EUR/USD seemed almost completely independent of the important fundamental indicators which were signaling the worsening economical situation in USA. EUR/USD was falling by more than 100 pips during the day, but then it returned to a more moderate loss - 50 pips.

Manufacturers' durable goods orders in October 2007 decreased by $0.9 billion which is 0.4% the previous month value. The consensus forecast for this value was at 0%, meaning that the orders shouldn't been changing at all.

National Association of Realtors announced its October existing home sales number - 4.97 million annualized, well below both 5.03 million in September and 5.00 expected for October.

Crude oil inventories reported by the U.S. Department of Energy from November 16 to November 23 declined by 0.4 million barrels, showing another week without an increase, which is so needed after some major inventories downfall several weeks ago.

Dollar Suffers From Lower Industrial Production

EUR/USD stopped its fall today and jumped back up to 1.4670 levels on Forex after today's Federal Reserve release on industrial production. In this October industrial production fell by 0.5% after 0.2% growth in September and median expectation at 0.1% for this month. That means that FOMC will probably need to adjust U.S. interest rates once again to stimulate economy growth.

With the decrease of industrial production, economy of the Unites States showed a decrease in industrial capacity utilization (which, of course, could be a cause for production drop). It fell from September's 82.2% to 81.7%, while an insignificant difference was expected (82.0%).

While Henry Paulson of U.S. Treasury spoke that Government will conduct a "strong dollar" policy. Its hardly can be done with such economical indicators reports. "Currency will represent the U.S. economical growth" - that was the main idea of Paulson's speech. But if economy is taking damage? Dollar will continue its demise.

Net foreign purchases of the long-term U.S. securities in September were at $55.4 billion. This is better than the August's negative -$33.6 billion, but worse than expected number ($66.0 billion) and average 2006 monthly net foreign purchases ($97.2 billion).

Will Better Budget Deficit Help USD?

U.S. dollar started its decline against other majors almost with the beginning of today's Asian trading session. EUR/USD broke through 1.4600 level but fell from it several times. Overall trading day for EUR/USD can be described as the "highly volatile correction".

The only important (to Forex market) economical data from U.S. today is Federal budget deficit figures by U.S. Treasury. It came out better expected - lower by almost 4 billion dollars than consensus number, landing at -$55.5B. It is a good result, considering September $111.5B budget surplus, but it is worse than previous October -$49.3B.

Budget results report's effect on currency market will be mostly determined by traders' reaction; positive or negative, it will depend on their own interpretation of the budget deficit influence on the FOMC's decisions.

Bad Fundamentals - Good for USD?

While dollar continued to rebound its weak positions today after EUR/USD failing to break 1.4180 resistance, fundamental stats from United States again came out below expectations. And again this caused a dollar rally against the Euro currency. ISM report on business activity for September 2007 showed a decrease by 1% - from 55.8% to 54.8% - well below the pessimistic expectation of 55.0%. After this report dollar went high to its weekly minimum at 1.4130 and now continues to gain strength.

One fundamental news that helped dollar and wasn't negative is the increase of the commercial crude oil inventories by 1.2 million barrels last week. This is logical, since when commodity prices are decreasing, currency gain value. As to the reaction on ISM services index - bad fundamental data now scare stock market investors away, thus making them to cash out into dollars (giving it more demand).

Bad ISM PMI Pushes Dollar Up?

EUR/USD hit another historical maximum today - 1.4281 and then unexpectedly retreated back to 1.4220-1.4230 levels. A still strong resistance value lies slightly below 1.4300 which is preventing EUR/USD to shoot up to 1.4500 or even farther. Every trader now must look towards Fed's Bernanke's decisions and ECB's Trichet's reaction on Euro/Dollar overvaluation (of it is possible in open market).

Fundamental analysis now speaks more for the stocks market rather than currency exchange market. ISM reported on September PMI today with the notable decrease from 52.9% to 52.0%, which is below 52.5% expected value. Anything higher than 50% is still good, but it was a bad surprise for U.S. economy. Surprisingly it turned good for dollar - EUR/USD didn't go above 1.4250 after this release. Nowadays, what's bad for U.S. stock market is good for dollar in its currency pairs on Forex.

EUR/USD Reaches New Historical Maximums

With the consumer confidence surveyed in this September fall beneath the level of 1985 (from 105.6 to 99.8) the U.S. dollar can't hold its position and loses almost 100 pips on EUR/USD rallying it to a new historical maximum at 1.4154.

While mortgage problems in U.S.A. continue to crush real estate sector throwing existing home sales to 5.5 millions in August (in July this number was 250,000 higher), consumer confidence - one of the main indicators of economy potential fall below any expectations by almost 6 points.

Considering the latest FOMC decision on interest rates it is not really hard to predict their reactions if today's news releases will set a tendency for the next month, leaving Fed with bad macroeconomical data. Then another 0.50% can be cut by the end of 2007 and EUR/USD may pass 1.4500 level without a stop.

EUR/USD To Break Above 1.3850?

After the Federal Open Market Committee released its statement yesterday EUR/USD remained on its positions until today's early European session, which brought Euro to a rally behind the crucial 1.3800 mark. Will EUR/USD stay above it? Probably. Will EUR/USD break the 1.3850 resistance barrier to soar high to 1.4000 level? Less probably. Let's look on the fundamentals.
Yesterday a labor productivity data for the industrial sector came out lower than expected by the majority of traders - 1.8% increase, instead of 2.1%. Meanwhile, consumer credit for June this year increased by 13.2 billion dollars, while analysts were expecting 6 billion dollars increase.
FOMC released another 'inflation-concerned' statement, leaving the interest rates at 5.25% level. While the main concern for the FOMC remains the inflation, it started to get nervous because of the risks connected with the economical growth and especially housing crisis.
Today data on business wholesale inventories came out slightly better than predicted - increased by 0.5% instead of 0.4%, while the crude oil inventories again dropped down significantly - by 4.1 million barrels.
Despite of FOMC being more inflation orientated, the economical growth correction will probably make them to decrease the interest rates at least once (or at least stop increasing it even more). Currently, housing data and oil inventories (taking in mind current oil prices) don't look very promising for the U.S.

EUR/USD Rallies On Bad U.S. Employment Data

Friday, as expected, showed us some real tough action in Forex EUR/USD pair with it hopping high to 1.3800. The first Fridays of the month are often like that - you have an almost flat week of dull trading and then some important news (employment market) come and the whole situation changes fast and completely unexpectedly.
Nonfarm payrolls in July 2007 dropped 34k and came out at 92k level - opposed to 135k expected showing some clear problem which could possible exist in U.S. employment market and thus in the whole economy. Unemployment rate rose to 4.6% from the previous and expected 4.5%, while average hourly earning rose by 0.3% - just as expected.
ISM Services Index was also released today - and it came out to be quite disappointing for the U.S. dollar bulls too - it dropped down from 60.7 to 55.8, while analysts expected at least 59.0 level.

Dollar Struggling Below 1.3700

Another day marked by U.S. dollar's struggle to hold below the 1.3700 mark and get out of the bearish trend. EUR/USD is waiting for more bull power before turning back to rising or is just being corrected by some good yesterday's economical news from United States.
ISM reported on Manufacturing PMI in July disappointed many dollar bullish traders as it came out at 53.8%, below the 55.5% expected, showing some possible problems in the manufacturing sector of the U.S. economics.
Previous week's oil inventories report showed a great decline of 6.5 million barrels of crude oil, while commercial petroleum inventories fell by 0.7 million barrels. But total present volumes of inventories remain satisfactional.
Today's news are less encouraging than usually - but one day doesn't mean a lot in the economics. Further news releases will tell us what to expect from U.S. economy and USD.

EUR/USD Can't Stay Above 1.3700

After breaking back above the 1.3700 mark EUR/USD fell below this level as the economic releases on inflation and consumer confidence were released today. Struggling below this level, if continued, may precede the new bearish trend in EUR/USD, while rallying and staying above will mean a return to a long-lasting EUR/USD bull trend.
Personal income and spending June numbers came out today close to the predicted values - 0.4% to 0.5% and 0.1% to 0.1% respectively. Core PCE inflation came out at 0.1% level - below the 0.2% predicted. This means that the inflation indicators are not high yet.
Chicago PMI - a major manufacturing index for the North-West region - decreased significantly from 60.2 to 53.4, while 58.5 was expected.
Construction spending numbers continue to warn the market about the crisis in realty sector showing a decrease of -0.3%, while analysts expected 0.2% growth.
Consumer confidence - the main surprise of a day which kept dollar below 1.3700 and stock markets high - came out at the 112.6 level (far above 105.4 expected) - at its highest value since 2001.

EUR/USD Faces New Downfall And U.S. GDP Data Released

EUR/USD dropped to its more than two weeks old minimum touching 1.3630 today while the market expected good data on GDP of United States for the seconds quarter of 2007. Breaking below 1.3230 for EUR/USD will mean a big trend breakout, but while it is traded higher a temporal correction should be considered.
U.S. GDP in Q2 2007 rose by 3.4% - a very good increase after 0.6% (revised from 0.7%) in Q1. It is also greater than expected number - 3.2%. Chain deflator for Q2 came out slightly lower than expected - 2.7% against 3.4% expected. Overall these are quite good results for the Q2. If U.S. economy can keep up with this pace in the second half of 2007, then it would add some more power to both stocks and Forex markets.
Today also Michigan Consumer Sentiment Index for July became available - 90.4 against 91.5 - lower than expected but still at a high level, showing a good sign for the U.S. economical health in general.

Bad U.S. News Keeping EUR/USD Above 1.3700

Today EUR/USD was ranging between 1.3690 and 1.3770 marks retracing a half of the yesterday's dollar rally. U.S. economy had some bad news for dollar bulls with only one bad for Euro bulls.
Manufactured durable goods orders in June increased by only 1.4% which was much lower the expected number - 2.0%, but still better than May result of decline in 2.8%.
Initial jobless claims for the last week surprisingly came out at the 301,000 level, slightly below the 310,000 number which was predicted by financial experts. Being the only positive news for the day, job market is still doing quite well, especially comparing to realty market.
Help-wanted advertising index isn't a very influential indicator of the economy growth but its decline to 26 (its staying at 27 was expected) can be an early sign for some problems on the U.S. employment market.
New homes sales in June dropped significantly from 893K (revised from 915K) to 834K units, continuing the series of bad news from the real estate sector of economy.

EUR/USD Drops Down With Bad Data on Housing and Oil Inventories

EUR/USD today is showing a very intensive bearish rally dropping to 1.3700 level after failing to take over the 1.3850 resistance mark. The major reason for such market behavior can be seen in a technical correction which should have came after the overbought condition in EUR/USD reaches its peak. Personally I thought that this correction will come a bit later letting the EUR/USD to get higher before falling down, but market is market - U.S. dollar is rallying despite of bad macroeconomic statistics which came out today.
Existing home sales - a major indicator of the U.S. economy since the crisis in the real estate sector began earlier this year - came out at 5.75 million units - below the expected 5.90 million and below the previous number of 5.98 million in May.
Crude oil inventories in the week ending on July 20 declined by 1.1 million barrels, while the motor gasoline inventories rose by 0.8 million barrels and distillate fuel inventories increased by 1.5 million barrels.

Key Fundamental Forex Data from U.S.

A rich day for the economical news releases from United States was today.
First, the weekly initial jobless claims data came out at the better than expected level showing only 301,000 claims for the previous week which signals the continued moderation of the U.S. unemployment rate.
Second, the leading indicators came out unexpectedly low at -0.3%, while analysts were expecting a growth of 0.1%.
Third, Philadelphia Federal Reserve manufacturing index came out at 9.2 - nearly a half of the expected 14.0.
And, at last, today's main news maker - FOMC minutes for the June 27-28 meeting were released today. The main idea of the minutes is that while the in the first quarter of 2007 economy grew at a slightly slowed down pace, the second quarter is more promising with the good news on industrial production and employment indicators; still the main concern for the Committee remain the inflation risks, while the GDP growth is estimated to be rather high in the rest of 2007.

Mixed Data from U.S. Again

Some more mixed data followed yesterday's PPI and industrial production today. Their affect on EUR/USD could be noticed as it rallied to new decade maximum on 1.3832 and then returned back below the crucial 1.3800 mark. Consumer Price Index was released slightly better than consensus (0.2% against 0.1%, while it was quite low compared to previous 0.7% rise in June 2006). As for real estate sector - a decline in building permits was dubbed with the increase in new housing starts. Business crude oil inventories were also released today and they showed a decline in 449,000 barrels for the last week. FOMC minutes will be released tomorrow and all Forex traders will listen carefully what Ben Bernanke has to say about U.S. economy so far. Some very high volatility can be expected tomorrow.

Day of Economical Releases and EUR/USD Calming

EUR/USD calmed a little today, not reaching 1.3800 level, as the majority of traders expected some important data from U.S. statistics. Data came out mixed, but generally better for dollar than for Euro. Producer Price Index in June this year showed a slight decline (-0.2%), while consensus was at +0.1%. PPI excluding food & energy to he contrary increased by 0.3% (0.2% expected). For the stock market main surprise has been prepared by the U.S. Treasury - Net Foreign Purchases in May were $126.1 billion (against $80.3B expected). Industrial production growth for June (a very important component of GDP) came out at 0.5% and the Industrial Capacity Utilization was at 81.7% (81.4% expected). So what do we get today? Very good signs of economical growth - foreign investments and high productivity - one hand, and disappointing data on inflation on the other hand. More news to come this week, so get ready for some more surprises and try to get some pips when EUR/USD starts rolling again.

U.S. Consumer Sentiments at Highs while Dollar at Lows

Today the preliminary consumers sentiment index (by University of Michigan) came out showing surprisingly good results - 92.4 against 86.0 expected - a historically high level of consumers confidence which indicates an uptrend the economy of United States. While consumer sentiment index is at its highest levels, dollar is suffering a continuous EUR/USD rally which showed a new maximum (for more than ten years period) at 1.3813 level today. Perhaps, strong macroeconomic indicators from U.S. prevented EUR/USD from keeping above 1.3800 mark, but it can be broken again at any time soon. Some other U.S. statistics became available today - business inventories growth in May increased from 0.4% to 0.5% (while a growth slowdown to 0.3% was expected). Advance monthly retail sales for June came out unexpectedly bad - falling down by 0.9% (they were expected to remain intact) - which is quite strange considering the high consumers sentiment index.

EUR/USD Uptrend Lowers Pace

EUR/USD, showing three days of straight growth with new monthly maximums every day, slightly lowered its rally today. Almost touching 1.3800 this currency pair stopped at 1.3797 and then rolled back for around 20 pips. Meanwhile, initial jobless claims for the previous week came out better than expected - 308,000 against 320,000 claims. U.S. trade balance came out at the expected level - $60.0 billions. If tomorrow Friday will be bullish and the 1.3800 level be broken a larger scale uptrend for EUR/USD will begin.