Transcript Introduction to WEN Products

PSG Product Overview
Presentation Overview
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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
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Investor
Trader
Derivatives
Long
Short
Gearing
Margin
Market Jargon - Investor
• Investor – An Investor buys
shares with the intention of
holding them for a few months
to years.
• Share selection is based on
long-term factors, such as
company fundamentals or
imminent sector growth.
Market Jargon - Trader
• A trader buys (or sells) shares with
the intention of holding them for a
much shorter timeframe, usually
within days or weeks.
• Share selection is based on shortterm factors, such as market
momentum or upcoming news flow.
• Traders have a short-term view and
act fast to bank profits. It requires
more attention than investing, but
the rewards are far quicker.
Market Jargon
• Derivative - A contract whose value depends
on (or derives from) the value of an
underlying asset e.g. share – ANG, BIL, SOL.
• Long - When you go long, you are hoping
that the underlying asset is going to rise so
that you can profit from this upward
movement.
• Short – If you are shorting (or selling a
contract), you will make a profit if the
underlying asset of your CFD falls below the
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
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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?
Buy shares
Client
Deliver CFD
Buy
shares
Deliver
shares
What is a Contract For Difference?
A geared investment whereby you only pay a Margin deposit
• 10% Top 40 shares
• 15% on Top 41 - Top 100 shares
but benefit from the entire movement of the
underlying share
CFD Product Description
Offer
• 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 topup 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
CFD
Regulated
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
CFD trading
Advantages
Disadvantages
• Low trading costs • Gearing & Risk
• No expiry date
• No voting rights
• Hedge your
current portfolio
• All the benefits
CFD Example
Profitable Long CFD Position
356
309
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)
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)
Profitable Long CFD Position
356
Interest Calculation
12.63%
Days in position (d)
5
Interest Cost
Interest Income on Margin
Net Profit
309
(R537.05)
R36.70
R43 467.25
SAFEX 10.63% + 2% p.a
Assumed for e.g.
(Total consideration*
12.63%) * (d/365)
[Margin deposit * (SAFEX 2% p.a) ] * (d/365)
Gross profit – interest on
cost + interest on margin
Straight Equity Return %
4.003%
On 100 shares
CFD return %
40.03%
On 1000 shares
Non-profitable Long CFD
356
309
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)
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)
Non-profitable Long CFD
Interest Calculation
12.63%
Days in position (d)
5
Interest Cost
Interest Income on Margin
Net Profit
(R618.74)
Assumed for e.g.
(Total consideration *
12.63% ) * (d/365)
R42.28
[Margin deposit * (SAFEX
- 2% p.a) ] * (d/365)
- R50 608.86
Gross profit – interest on
cost + interest on margin
356
309
SAFEX 10.63% + 2%
Straight Equity Return %
- 2.42%
On 100 shares
CFD return %
- 24.2%
On 1000 shares
Important notes on
CFD Long Positions
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•
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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 Position
356
309
Number 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)
Profitable Short CFD Position
356
Interest Calculation
8.63%
Days in position (d)
5
Interest Cost
R418.94
Interest Income on Margin
R41.89
Lending Fee of 1.5% p.a.
Net Profit (G.P R43 967.60)
309
(R72.82)
R44 355.61
SAFEX 10.63% - 2% p.a
Assumed for e.g.
(Total consideration *
8.63%)*(d/365)
[Margin deposit * (SAFEX 2% p.a.) ] * (d/365)
(Consideration * 1.5%) *
(d/365)
Gross profit + interest on
cost + interest on marginlending fee
Straight Equity Return %
2.517%
On 100 shares
CFD return %
25.17%
On 1000 shares
Non-profitable Short CFD
356
309
Number 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)
Non-profitable Short CFD
356
Interest Calculation
8.63%
Days in position (d)
5
Interest Cost
R363.63
Interest Income on Margin
R36.36
Lending Fee of 1.5% p.a.
309
Net Profit (G.P. - R50 032.40)
(R63.20)
-R49 639.61
SAFEX 10.63% - 2% p.a
Assumed for e.g.
(Total consideration*
8.63%)*(d/365)
[Margin deposit * (SAFEX 2% p.a) ] * (d/365)
(Consideration * 1.5%) *
(d/365)
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
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 Sitemap
Top 100 Shares: Margin
List reset after each Quarterly futures Close out
CFD Holdings
CFD 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 Statement
CFD Margin Statement
CFD Financial Statement
Summary & Conclusion
• CFD trading is only suitable for
experienced & sophisticated
clients.
• No admin cost (R40 p.m.)
• Open a CFD trading account
• Happy trading!
Contact Details
Trading Desk
(011) 996 5201
Sihle Ngema
(011) 996 5248
Cameron Pluck
(011) 996 5202
Pierre Hageman
(011) 996 5252
Elaine van Damme
(011) 996 5212
Questions?