with high risk high return, why don't people use spreadbets or CFDs?

[john kane]

say stock A over the coming year will either go down 40% or go up 90% with 50:50 odds.

would a spreadbet/CFD be the best way to do this.

It would cost 7% annually.

Say if rather than just buying the stock, you want to treble the potential profit/loss, therefore a 33% swing down costs you all your investment.

So here, you put down your $10K in the stock. It either goes down 40% = $6K, or up 90%, $19K. EV=$12.5K

But if you CFD/spreadbet it:

if it goes down 40%, your busto anyway = $0K.

but if it goes up 90%, you make 83% net (higher given financing spread over year but cancelled out by any fees, higher buy/sell spread. Since this return is tripled, you make 249% or end out with $34.9K (i think that is right?)
EV=$17.45K.

i.e tripled returns.

now i know looking at that it is kinda obvious becuase it's gone up, but for stocks where it's either going up big or down big, isn't it better to risk a little to potentially gain a lot?

And for anyone saying well you lose more, yeah, but if im always making bad investments, no matter if i leverage or not, ill end out bust, so i have to presume that the investments are +ev.

thanks if you can reply.

[Korch]

[ QUOTE ]
But if you CFD/spreadbet it:

if it goes down 40%, your busto anyway = $0K.

but if it goes up 90%, you make 83% net (higher given financing spread over year but cancelled out by any fees, higher buy/sell spread. Since this return is tripled, you make 249% or end out with $34.9K (i think that is right?)
EV=$17.45K.


[/ QUOTE ]

who offers this, what do the spreads/commissions look like?

[kimchi]

[ QUOTE ]
who offers this, what do the spreads/commissions look like?

[/ QUOTE ]

Spreadbets are not available for US investors, but are very popular in Europe. Speadbets are tax and commission free, although the spreads are wider than the underlying market (ie - 0.01% to 0.25% depensing upon the market)

I think JohnKane is looking for something to do for 3 months

And John, you should just test your ideas in Excel or some charting package. You'd be suprised to find what works and doesn't.

[Korch]

do you know how i can look at some of these bets as a US resident? I know i can't trade them, but i'd like to see what the mkts look like. Thanks.