exposing opportunities in china a50 using cfd

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Exposing Opportunities in China A50 using CFD

Updated 20.03.2013



• These presentation slides are provided to you for general information only and does not constitute a recommendation or an offer or solicitation to purchase or sell the product mentioned. They do not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of you acting based on this information.

• Investments are subject to investment risks. The risk of loss in leveraged CFD trading can be substantial. You may sustain losses in excess of your initial funds and may be called upon to deposit additional margin funds at short notice. If the required funds are not provided within the prescribed time, your positions may be liquidated.

• You should also consider the commission and finance costs involved for trading CFDs. The resulting deficits in your account are subject to penalty charges. The value of investments denominated in foreign currencies may diminish or increase due to changes in the rates of exchange.

• You are advised to read the Terms and Conditions of CFD Trading and CFD Information Sheet before undertaking transactions in CFDs. The Terms and Conditions of CFD Trading and CFD Information Sheet can be obtained online at www.poems.com.sg or from Phillip Securities Pte Ltd.

• You may wish to obtain advice from a qualified financial adviser, pursuant to a separate engagement, before making a commitment to purchase any of the investment products mentioned herein. In the event that you choose not to obtain advice from a qualified financial adviser, you should assess and consider whether the investment product is suitable for you before proceeding to invest and we do not offer any advice in this regard unless mandated to do so by way of a separate engagement.

Disclaimer



• CFDs may not be suitable for clients whose investment objective is preservation of capital and/or whose risk tolerance is low. Clients are advised to understand the nature and risks involved in margin trading.

• You are advised to read carefully and understand the Risk Disclosure Statement from www.phillipcfd.com/download/PhillipCFDRiskDisclosureStatement.pdf before undertaking transactions in CFDs.

• Any CFD offered is not approved or endorsed by the issuer or originator of the underlying security and that the issuer or originator is not privy to the CFD contract.

• Phillip Securities Pte Ltd reserves the right to amend the information presented without prior notice.

• The Straits Times Index CFD (the “Securities”) are not in any way sponsored, endorsed, sold, or promoted by FTSE International Limited, The London Stock Exchange Plc, The Financial Times Limited, SPH Data Services Pte Ltd, Singapore Press Holdings Ltd or Singapore Exchange Securities Trading Limited (collectively, the “Index Sponsor”), and the Index Sponsor bears no liability in connection with the administration, marketing or trading of the Securities. No warranty or representation or guarantee of any kind whatsoever relating to the Straits Times Index (the “ST Index”) or the Securities is given by the Index Sponsor. Singapore Press Holdings Ltd is entitled to all intellectual property rights in the ST Index.

• Some information in this presentation as been obtained from public sources which PSPL has no reason to believe are unreliable. PSPL has not verified such information and no representation or warranty, expressed or implied, is made that such information is accurate, complete or verified or should be relied upon as such.

Disclaimer (cont’d)



(1) Leveraged instrument- Risk of loss can be substantial

(2) Profits and Losses magnified- Depending on nature of trade, losses may be unlimited

(3) Suitability- CFD may not be suitable for you if your:-a) Investment Objective is CAPITAL PRESERVATION and/orb) Risk Tolerance is LOW

(4) Execution of OrdersWhen a client places a CFD order, pre-execution checks are performed on

account status, fund sufficiency, credit limit, etc. In addition, CFD orders are subject to certain risk management checks, including the ability of PSPL to hedge its own exposure under CFD positions with clients. This means that a client’s CFD order may not be filled immediately or it may not be filled at all.

Risks of Trading CFD



What will be covered today

• What is Contracts For Difference (CFD)

• Why you should invest in China

• How to use CFD to trade the FTSE China A50

5



A CFD is a derivative product

that allows you to participate

in the price movement of an

underlying share / index,

without owning the shares of

the company.

What is Contracts For Difference (CFD)?



Client BrokerageHouse

CFD trades

Contractual agreement between two parties to settle the difference between the closing and opening price at the close of contract.

Definition of CFD




CFD – A trading instrument to complement your trading strategies

Convenient to short sell

Flexible trading strategies

Diversify with up to 20 times leverage

Gross Profit or Loss =

(Closing Price – Opening Price) x Value of 1 Index Point x Quantity




WHY YOU SHOULD INVEST IN CHINA

9



Why you should invest in China

• Economic recovery

• GDP +7.9% yoy (exceeding market expectation of 7.4%) last quarter

• 2012 GDP +7.8% yoy (market expectation was 7.7% but PSR was 7.8%)

• Policies

• Domestic demand is stable

• No massive monetary loosening expected in the near term

• CNY is still moderately undervalued

10



Why you should invest in China

11



A-shares vs H-shares – what’s the diff?

A-shares

• Traded on the Shanghai & Shenzhen stock exchanges

• Generally traded as a premium against the H-shares

• Foreigners are restricted from investing

H-shares

• Also known as Hang Seng China Enterprises Index

• Companies are incorporated in China but traded on the Hong Kong Stock Exchange

• Price discrepencies with A-share counterpart of the same company

• Open to foreigners

12



What is the FTSE China A50?

• Index that tracks the larges 50 A-shares companies by full market capitalisation listed on the Shanghai & Shenzhen stock exchanges

• Provides investors a macro view of the performance of China by referencing to a single value



FTSE CHINA A50How to use CFD to trade the



Features of the FTSE China A50 USD1 CFD

• Gain exposure to a market that’s CLOSED to foreigners• Up to 5x leverage• Long and Short• Competitive spread• No expiry unlike Futures• Enjoy corporate actions on ex-date• Small contract size – minimum of 1



FTSE China A50

16



• Is a form of CFD allowing clients to trade the underlying index

• Based on futures (cash-correlating)

•It tracks the level of the index, although the prices may differ from the actual index levels

ProfitProfit / / LossLoss

2100

2200

2300

2400

2500

2600

2700

Investor may take a bearish view and Sell (Short) a China A50 CFD contract on Index at 8200

When the index level increases to 8600, investor can Buy back his China A50 CFD contract and incur a loss

2100

2200

2300

2400

2500

2600

2700

When the china A50 index level increases to 8600, investor can Sell off his A50 CFD contract and receive the profit

Investor may take a bullish view and Buy (Long) a China A50 CFD contract on Index at 8200

FTSE China A50 Index USD1 CFD



How to interpret the product names

FTSE China A50 USD1 CFD

Product Name Traded Currency Index point value

Contract Size = Price of Index x USD$1 x Qty



Index

Value of 1 Index Point

Contract Size

*Target Spreads

Initial Margin

(IM)

Mainte-nance Margin (MM)

CFD Trading Hours (Singapore time)

FTSE China A50

USD1 CFD

USD$1

USD$1 x Price of Index x

Qty

20 20% 20%9:01 am – 15:24

pm

FTSE China A50 USD1 CFD (Cash Correlating)

For example: Assume China A50 is currently at 8200 pts

CFD Bid CFD Ask

Straits Times Index SGD5 CFD 8190 8210

*Target spread -10 +10

*Target spreads are subject to variation, especially in volatile market conditions and may widen during out-of-trading hours



Low margin requirements

Trade largest 50 A Shares Chinese counters from as low as…

20%(5 times leverage)

Example:Long 1 lot of China A50 Index USD1 CFD @ 8200Contract size = 8200 x USD$1 x 1 = USD$8,200Margin requirement = 20% x USD$8,200 = USD$1640.00

Features of FTSE China A50 USD1 CFD



Order Execution for China A50 Index USD1 CFD?

Golden Rule: Buy on Ask, Sell on Bid

8200 8220

BID ASK



Participate in corporate actions

When a World Index CFD that caters for corporate actions announces dividends:

- Long positions to receive cash adjustment in World Index CFD Contract- Short positions to pay cash adjustment in World Index CFD Contract- Cash adjustment is done on Ex-Date

Formula for dividend adjustment

Step 1: Equivalent number shares =

[Qty of Index Contract x Settlement Price of Index CFD x Value of 1 Index Point] x Stock Weighting on the Index / Settlement Price of Component Stock

Step 2: Dividend adjustment = Equivalent number of shares x dividend issued per share

Corporate actions



Working Examples, Example 1: ‘BUY’ (Long) China A50 Index USD1 CFD

Client is bullish on China A50 Index and decides to buy (LONG) 1 contract of China A50 Index USD1 CFD at 8200.

Assuming margin requirement is 20% with leverage of 5 times.

Bought at 2943

Sell off at 3173

The listed example is for illustration purpose only. Past performance not indicative of future performance



Scenario 1: Client closed his position 21 days later and sold off China A50 Index USD1 CFD at 8600.

Quote in USD FTSE China A50 USD1 CFD

Quantity 1 contract

Initial Capital $1640

Opening @ 8200:

Contract Value $8,200

Commission ($0.99)

Position closed on Day 21

Finance Charges* ($18.90)

Closing @ 8600:

Contract Value $8,600

Commission (w 7% GST) ($0.99)

Net Profit / (Loss) $379.12

Return on Equity (%) 23.11%

*Finance charge is calculated based on contract opening price, assuming it remains unchanged.



Scenario 2: Client closed his position 21 days later and sold off China A50 Index USD1 CFD at 7800.

Quote in USD FTSE China A50 USD1 CFD

Quantity 1 contract

Initial Capital $1640

Opening @ 8200:

Contract Value $8200


Position closed on Day 21

Finance Charges* ($18.90)

Closing @ 7800:

Contract Value $7800


Net Profit / (Loss) ($420.88)

Return on Equity (%) (25.66%)

*Finance charge is calculated based on contract opening price, assuming it remains unchanged.



Phillip CFD Trading Platform – CFDTrader 2

You will receive an You will receive an email with email with

instructions to instructions to download download

CFDTrader 2CFDTrader 2



Phillip CFD is now on POEMS Mobile!

Smart CFD Trading anytime, anywhere with POEMS Mobile iPhone & iPad app.

Trade Shares CFD, or DMA CFD from 1 app.



• Please read carefully our product information sheet, terms and conditions and risk disclosure statements which can be obtained from www.phillipcfd.com

• Attend our educational seminars. It will help you have a better understanding of CFD.

• Familiarize yourself with the platform. We organize tutorials guiding clients on CFDTrader usage.

• Should you have any queries, kindly contact your Trading Representative or CFD Desk

Before You Begin Trading



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exposing opportunities in china a50 using cfd

Economy & Finance