psg product overview presentation overview market jargon what is a cfd ? key features of cfd product...
TRANSCRIPT
PSG Product Overview
Presentation Overview
• Market Jargon
• What is a CFD ?
• Key features of CFD product
• Comparison with traditional shares
• Comparison with other derivatives
• Pro’s & Con’s od trading CFD’s
• CFD Trading examples
• Investor risks and obligations
Market Jargon
• InvestorInvestor
• TraderTrader
• DerivativesDerivatives
• LongLong
• ShortShort
• Gearing Gearing
• MarginMargin
Market Jargon - Investor
• Investor – An Investor buys Investor – An Investor buys shares with the intention of shares with the intention of holding them for a few months holding them for a few months to yearsto years. .
• Share selection is based on Share selection is based on long-term factorslong-term factors, such as , such as company fundamentalscompany fundamentals or or imminent sector growth. imminent sector growth.
Market Jargon - Trader • A trader buys (or sells) shares with A trader buys (or sells) shares with
the intention of holding them for a the intention of holding them for a much shorter timeframemuch shorter timeframe, usually , usually within days or weekswithin days or weeks. .
• Share selection is based on short-Share selection is based on short-term factors, such as term factors, such as market market momentummomentum or or upcoming news flowupcoming news flow..
• Traders have a short-term view and Traders have a short-term view and act fast to bank profits. It act fast to bank profits. It requires requires more attentionmore attention than investing, but than investing, but the rewards are far quicker. the rewards are far quicker.
Market Jargon• DerivativeDerivative - A contract whose value depends - A contract whose value depends
on (or derives from) the value of an on (or derives from) the value of an underlying asset e.g. share – ANG, BIL, SOL.underlying asset e.g. share – ANG, BIL, SOL.
• LongLong - When you go long, you are hoping - When you go long, you are hoping that the underlying asset is going to rise so that the underlying asset is going to rise so that you can profit from this upward that you can profit from this upward movement. movement.
• ShortShort – If you are shorting (or selling a – If you are shorting (or selling a contract), you will make a profit if the contract), you will make a profit if the underlying asset of your CFD falls below the underlying asset of your CFD falls below the price you entered the contract at. price you entered the contract at.
Market Jargon - Gearing • CFDs are geared products. • This means that there are money
multiplier effects at work i.e. gearing magnifies your returns 10 times or more.
• Gearing is essentially the borrowing of funds to purchase a financial instrument i.e. trading on margin.
• This means that you are leveraged. • For each cent the share moves in
your favour, you are multiplying the profits by up to 10 times.
Market Jargon - Margin• Due to the gearing aspect, you gain
exposure to much more than your margin (deposit) covers you for.
• You put down a small deposit (10%-15%) but benefit from the movement of the total exposure.
• If the margin requirement is 10%, you effectively put down one tenth of the total value of whatever share you are trading.
What is a Contract For Difference?
Contract between 2 parties to settle at the close of the contract the difference between the opening price and closing price of a share specified in the contract multiplied by the number of shares specified in the contract
• CFD: Contract for Difference• Party 1: Writer (Stockbroker e.g. Online Securities)• Party 2: Holder (Investor)• Contract type: Long OR Short• Internationally popular with professional investors and speculators (>30% LSE volume trade)
What is a Contract For Difference?
Client
Buy shares
Buy shares Deliver
shares
Deliver CFD
What is a Contract For Difference?
A geared investment whereby you only pay a Margin deposit A geared investment whereby you only pay a Margin deposit
• 10% Top 40 shares10% Top 40 shares
• 15% on Top 41 - Top 100 shares15% on Top 41 - Top 100 shares
but benefit from the entire movement of the but benefit from the entire movement of the underlying shareunderlying share
CFD Product DescriptionOffer• Long and Short CFD’s on Top100 JSE listed shares.• Margin deposit
• 10% Top 40 shares• 15% on Top 41 - Top 100 shares
• Variation margin required for adverse share price movement.
• Brokerage 0.4% per transaction • Breakeven 0.92% (VAT included)• Zero UST • Financing at competitive rates
• Current borrowing rate 12.63% (± Prime – 2%)• Minimum Exposure per trade of R100 000 (R10 000 margin)
Underwritten by Online Securities Ltd• PSG Online is a stockbroking firm who is a member of JSE • We are regulated by the Securities Exchange Control Act
Comparison with traditional shares
CFD Traditional Equity No physical equity holding
Do not pay UST
No voting rights
Earn synthetic dividends
Physically hold equity
Pay UST of 0.25%
Voting rights
Earn real dividends
Leveraged trading
Settle only collateral (10% - 15%) plus top-up if required
Gearing provided at cheap rates (Safex +2% or roughly Prime -2%)
Not leveraged
Must settle full exposure amount
Expensive to borrow against shares
Settlement Period
Settled T+1
Settlement Period
Settled T+5
Taxation
Considered a Trader
Added to personal income
(Trading Instrument)
Taxation
Capital Gains Tax (CGT)
(Investment Instrument)
Easy to short
Suitable for both hedging & trading opportunities
Typically long only
Comparison with other Derivatives
Warrant Future CFDRegulated By JSE By JSE No Regulation
Listed Instrument
Yes Yes No
Geared Yes Yes Yes
Payment Upfront
Warrant
Premium
Margined Margined
Trade Costs Same as Shares
Cheaper than Shares
Cheaper than Shares
Short the Market?
Yes Yes Yes
Max Loss Premium Paid
Unlimited Loss
Unlimited Loss
Comparison with other Derivatives
Warrant Future CFD
Regulated By JSE By JSE No Regulation
Risk Profile Lower than Futures &
CFD’s
High (see Max Loss above)
High (see Max Loss above)
Liquid Market Yes = Dedicated
Market Makers
Yes = Dedicated
Market Makers
Liquidity only provided by person who
initially traded with you
Pricing
Methodolody
Option Pricing
(Black & Scholes)
Delta between 0
and 1
Futures Pricing (Delta 1)
Similar to Futures (Delta 1)
Pro’s & Con’s of Pro’s & Con’s of CFD tradingCFD trading
• Low trading costsLow trading costs• No expiry dateNo expiry date• Hedge your Hedge your
current portfoliocurrent portfolio• All the benefitsAll the benefits
• Gearing & Risk Gearing & Risk • No voting rightsNo voting rights
AdvantagesAdvantages DisadvantagesDisadvantages
CFD Example
Profitable Long CFD PositionNumber of Shares 1 000
Buying Price R309.00
Consideration R309 000.00 Number shares * buying price
0.4% Brokerage R1 236.00 Consideration * 0.4%
VAT @14% R173.04 Brokerage * 14%
Total R310 409.04 ∑ (consideration, Brokerage, VAT)
Margin Required R31 040.90 Total * margin %
Break-Even on Buy R310.41 Total/number shares
Percentage move needed
0.46% (breakeven price/ Purchase price)-1
Number of Shares 1 000
Selling Price R356.00
Consideration R356 000.00 Number shares * buying price
0.4% Brokerage R1 424.00 Consideration * 0.4%
VAT @ 14% R199.36 Brokerage * 14%
Total R354 376.64 Consideration- Brokerage -VAT
Break-Even on Sell R354.38 Total / number shares
Gross Profit R43 967.60 (Total sell consideration- Total buy consideration)
356356
309309
Profitable Long CFD Position
Interest Calculation 12.63% SAFEX 10.63% + 2% p.a
Days in position (d) 5 Assumed for e.g.
Interest Cost (R537.05) (Total consideration* 12.63%) * (d/365)
Interest Income on Margin R36.70 [Margin deposit * (SAFEX - 2% p.a) ] * (d/365)
Net Profit R43 467.25 Gross profit – interest on cost + interest on margin
Straight Equity Return % 4.003% On 100 shares
CFD return % 40.03% On 1000 shares
356356
309309
Non-profitable Long CFDNumber of Shares 1 000
Buying Price R356.00
Consideration R356 000.00 Number shares * buying price
0.4% Brokerage R1 424.00 Consideration * 0.4%
VAT @14% R199.36 Brokerage * 14%
Total R357 623.36 ∑ (consideration, Brokerage, VAT)
Margin Required R35 762.37 Total * margin %
Break-Even on Buy R357.62 Total/number shares
Percentage move needed 0.46% (breakeven price/ Purchase price)-1
Number of Shares 1 000
Selling Price R309.00
Consideration R309 000.00 Number shares * buying price
0.4% Brokerage R1 236.00 Consideration * 0.4%
VAT @ 14% R173.04 Brokerage * 14%
Total R307 590.96 Consideration- Brokerage -VAT
Break-Even on Sell R307.59 Total consideration / number shares
Gross Profit - R50 032.40 (Total sell consideration- Total buy consideration)
356356
309309
Non-profitable Long CFD
Interest Calculation 12.63% SAFEX 10.63% + 2%
Days in position (d) 5 Assumed for e.g.
Interest Cost (R618.74) (Total consideration * 12.63% ) * (d/365)
Interest Income on Margin R42.28 [Margin deposit * (SAFEX - 2% p.a) ] * (d/365)
Net Profit - R50 608.86 Gross profit – interest on cost + interest on margin
Straight Equity Return % - 2.42% On 100 shares
CFD return % - 24.2% On 1000 shares
356356
309309
Important notes on CFD Long Positions
• Pay interest at SAFEX + 2 % p.a
• The holder will receive a synthetic dividend
• Synthetic dividend
– Dividend is not earned tax free as a CFD is a derivative contract
– In the case of a Long CFD, a holder of a long contract will be paid an amount equal to the dividend by issuer.
– This is seen as an income and is subject to tax
CFD Example
Profitable Short CFD PositionNumber of Shares 1 000
Selling Price R356.000
Consideration R356 000.00 Number shares * selling price
0.4% Brokerage R1 424.00 Consideration * 0.4%
VAT @14% R199.36 Brokerage * 14%
Total R354 376.64 Consideration- Brokerage -VAT
Margin Required R35 437.66 Total * margin %
Break-Even on Sell R354.38 Total/number shares
Percentage move needed 0.46% (breakeven price/ Purchase price)-1
Number of Shares 1 000
Buying Price R309.00
Consideration R309 000.00 Number shares * buying price
0.4% Brokerage R1 236.00 Consideration * 0.4%
VAT @ 14% R173.04 Brokerage * 14%
Total R310 409.04 ∑ (consideration +Brokerage& VAT)
Break-Even on Buy R310.41 Total / number shares
Gross Profit R43 967.60 (Total sell consideration- Total buy consideration)
356356
309309
Profitable Short CFD Position
Interest Calculation 8.63% SAFEX 10.63% - 2% p.a
Days in position (d) 5 Assumed for e.g.
Interest Cost R418.94 (Total consideration * 8.63%)*(d/365)
Interest Income on Margin R41.89 [Margin deposit * (SAFEX - 2% p.a.) ] * (d/365)
Lending Fee of 1.5% p.a. (R72.82) (Consideration * 1.5%) * (d/365)
Net Profit (G.P R43 967.60) R44 355.61 Gross profit + interest on cost + interest on margin- lending fee
Straight Equity Return % 2.517% On 100 shares
CFD return % 25.17% On 1000 shares
356356
309309
Non-profitable Short CFDNumber of Shares 1 000
Selling Price R309.00
Consideration R309 000.00 Number shares * selling price
0.4% Brokerage R1 236.00 Consideration * 0.4%
VAT @14% R173.04 Brokerage * 14%
Total R307 590.96 Consideration- Brokerage -VAT
Margin Required R30 759.10 Total * margin %
Break-Even on Sell R307.59 Total/number shares
Percentage move needed 0.46% (breakeven price/ Purchase price)-1
Number of Shares 1 000
Buying Price R356.00
Consideration R356 000.00 Number shares * buying price
0.4% Brokerage R1 424.00 Consideration * 0.4%
VAT @ 14% R199.36 Brokerage * 14%
Total R357 623.36 ∑ (consideration +Brokerage& VAT)
Break-Even on Buy R357.62 Total / number shares
Gross Profit - R50 032.40 (Total sell consideration- Total buy consideration)
309309
356356
Non-profitable Short CFD
Interest Calculation 8.63% SAFEX 10.63% - 2% p.a
Days in position (d) 5 Assumed for e.g.
Interest Cost R363.63 (Total consideration* 8.63%)*(d/365)
Interest Income on Margin R36.36 [Margin deposit * (SAFEX - 2% p.a) ] * (d/365)
Lending Fee of 1.5% p.a. (R63.20) (Consideration * 1.5%) * (d/365)
Net Profit (G.P. - R50 032.40) -R49 639.61 Gross profit + interest on cost + interest on margin –lending fee
Straight Equity Return % - 16.138% On 100 shares
CFD return % - 161.38% On 1000 shares
309309
356356
Important notes on CFD Short Positions
• You pay a script lending fee of 1.5% p.a.• Receive interest at SAFEX -2 % p.a.• The holder is liable for the dividend• Synthetic dividend
– Dividend is not earned tax free as a CFD is a derivative contract
– In the case of a short CFD, a holder of a short contract will have to pay the dividend to the issuer
Investor Risk and Obligations
CFD’s provide investors with leveraged exposure to an underlying security. This has the effect of magnifying profits and losses and consequently trading in CFD’s carries significant more risk than traditional equity investments, therefore the CFD product is only suitable for experienced and sophisticated clients.
In particular investors should note that profits and losses on CFD trades can be many times the original trade size. Depending on the nature of a trade, losses may be unlimited. One should therefore only trade in CFD’s if prepared to accept the attendant degree of risk. A worst case scenario should always be anticipated before entering into a trade as the value of a CFD contract is calculated on a continuous basis and investors have the responsibility to ensure that amounts transferred to meet their variation margin responsibilities are cleared timeously.
PSG Online SitemapPSG Online Sitemap
Top 100 Shares: MarginTop 100 Shares: MarginList reset after each Quarterly futures Close outList reset after each Quarterly futures Close out
CFD HoldingsCFD Holdings
CFD Order BookCFD Order Book
Status Description
X Cancelled
M Matched
O Open Order
AA Awaiting Authorization
OM Partially Matched Order
XM Partly Matched & Cancelled Order
CFD Share StatementCFD Share Statement
CFD Margin StatementCFD Margin Statement
CFD Financial StatementCFD Financial Statement
Summary & ConclusionSummary & Conclusion
• CFD trading CFD trading is only suitable for experienced & sophisticated clients.
• No admin cost (R40 p.m.)No admin cost (R40 p.m.)
• Open a CFD trading accountOpen a CFD trading account
• Happy trading!Happy trading!
Contact Details
Trading Desk(011) 996 5201
Cameron Pluck(011) 996 5202
Pierre Hageman(011) 996 5252
Elaine van Damme(011) 996 5212
Sihle Ngema(011) 996 5248
Questions?