Investment strategy using 'speeders', would it work?
Hi,
My broker is offering free transaction costs on speeders. Speeders are basically securities that allow you to leverage the return on an underlying security (indicies, gold, oil, individual stocks, etc.). For example if a stock is trading at $25, the bank finances $20 while you pay $5 (the price of the speeder). If the stock price goes up to $26, the speeder will be worth $6 (return on 20%). In this case the leverage ratio is 5, meaning if the stock price goes up by 4%, the speeder price goes up by 20%. The same thing happens on the downside, but you cannot lose more than you put it (once the security hits just above $20 in this case it is liquidated).
I am considering pursuing a passive strategy as follows. Buy a number of speeders in many uncorrelated securities (be it a large number of stocks, gold, oil, etc.). Set a relatively low stop-loss which is moved up as the price of the security increases. In this way you capture the upside, but very little of the downside. The fact that you are using speeders increases the speed at which this all happens. The fact that there are no transaction costs makes this even more possible.
Of course its possible that in the very short term it may make a loss but in the medium term shouldn't it be a profitable strategy?
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