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Experience:  Attorney and Financial Expert. Have specialization in Financial Laws.Practice experience of over 13 years
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Hi,
I had a question regarding purchasing S&P500 stock index lots, using leverage and a monthly deposit, with returns compounding on the initial deposit & monthly deposit on the S&P500 monthly return. The returns are listed monthly with this experiment.
I have a excel spreadsheet I built that takes an initial deposit to purchase S&P500 index lots say £10,000, but we leverage 6 times to purchase £60,000 worth of S&P500 index lots (using CFD derivatives). Then each month we add a monthly deposit say £400 to purchase an additional S&P500 lot. Each month we also reinvest our profits from the initial purchase as well as the monthly deposit.
I need an expert to tell if my calculation is correct.
Here is my calculation. With an example.
Lets say
We have £10,000 and we use this to purchase £65,000 worth of S&P 500 lot CFDs. We are leveraging 6.5 times our initial capital.
Month 1
We have balance of £10,000
Month 1 S&P500 return is 0.51% which is 0.51 x 6.5 = 3.32% return for us (we used leverage)
Total return profit is £331.50
Total balance is now £10,331.50
2nd month
We have a balance of £10,331.50
We add £400 at beginning of month
Balance is now £10,731.50 (we reinvest all our profits by purchasing more S&P500 lots)
Month 2 S&P500 return is 2.41% which is 2.41 x 6.5 = 15.67% return for us
Total profit is £1,681
New balance is £12,412.59
3rd month
We have a balance of £12,412.59
We add £400 at beginning of month
Balance is now £12,812 (we reinvest all our profits by purchasing more S&P500 lots)
Month 3 S&P500 return is -0.56% which is 0.56 x 6.5 = -3.64% return for us
Total loss is £-466.37
New balance is £12,346
Is this correct technique I am using? and could you explain if anything is wrong?
Thanks
Submitted: 2 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 2 years ago.
Dear Friend,

Hello and welcome. Thank you for providing an opportunity to assist you.

Yes, you are absolutely correct. There are no mistakes in it.

It is understood that you are using leverage so that an 0.50% gain or losses would translate into 3-4% of your capital because of this leverage. You keep ploughing your profit and in that case, the effect of the leverage would be perfectly correct as you have explained in your hypothetical example.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question,

Warm Regards
Customer: replied 2 years ago.

Hi Rakhi

Before I finish this answer, when I have finished building my spreadsheet model of this, could you check the spreadsheet for me? and how much will the charge be for this, if possible?

If this is possible, I know that justanswer do not allow attachments, so I do not know how to get this spreadsheet to you. If you could provide some way, that would be great.

Thanks

Nithin

Expert:  Rakhi Vasavada replied 2 years ago.
Dear Friend,

JustAnswer does allow attachments. Or else, you can get in touch with the customer care, mail them the attachment and they will send it to me.

You can try and use the "PIN" icon on your toolbar if available to attach. You can also use free file hosting service like https://www.mediafire.com/ to share file with me.

I am sure this would help.

You may please leave a positive rating if this helps as this is the only way we are compensated for assisting you. Alternatively, you may revert back with a reply if you need further assistance or if I have missed out on any aspect of your question,

Warm Regards
Category: Finance
Satisfied Customers: 4496
Experience: Attorney and Financial Expert. Have specialization in Financial Laws.Practice experience of over 13 years
Customer: replied 2 years ago.

Hi Rakhi,

Thanks for email.

I will setup a new question in a week or 2 weeks with a spreadsheet of my model. So you can check this. So watch this space!

For now I will finish this question. Thanks for your help.

Thanks

Nithin

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