1. 1. Contracts For Difference
2. 2. Contracts For Difference (CFD)What is a CFD ? 1How do they work? Margin & Gearing2Why Trade CFDs?3Cost4Trade Comparison5 Table of Contents
3. 3. What is a CFD? A CFD is a Contract for the Difference . This is anOTC (over-the-counter) product offered by institutions asopposed to an exchange traded instrument. The profit orloss is the difference between the entry price of the tradeand the exit price of the trade.03 What is a CFD?
4. 4. Exit/Entry Price The difference between your entry and exit price is the profit P on the trade, which can be RO generated by either going long F or by going shortIT Entry /Exit Price04What is a CFD?
5. 5. A CFD is a derivative of the actual underlying instrument05 What is a CFD?
6. 6. The CFD tracks the exact price movement of theunderlying instrument on the exchange where it trades.06What is a CFD?
7. 7. The CFD tracks the exact price movement of theunderlying instrument on the exchange where it trades. Underlying instrument categories are mainly shares,commodities, indexes and forex.07What is a CFD?
8. 8. The CFD tracks the exact price movement of theunderlying instrument on the exchange where it trades. Underlying instrument categories are mainly shares,commodities, indexes and forex. CFDs can be traded both locally and internationally onmost liquid markets08 What is a CFD?
9. 9. The CFD tracks the exact price movement of theunderlying instrument on the exchange where it trades. Underlying instrument categories are mainly shares,commodities, indexes and forex. CFDs can be traded both locally and internationally onmost liquid markets. CFDs are traded on the principle of willing buyer / willingseller.09What is a CFD?
10. 10. How do they work?010
11. 11. The attraction is GEARING011Margin and gearing
12. 12. To understand GEARING we firstunderstandMARGIN012Margin and gearing
13. 13. Margin is the deposit you need to put down to buy/sell theshares013Margin and gearing
14. 14. Its like buying a house014 Margin and gearing
15. 15. Gearing Is a measure of exposure.015 Margin and gearing
16. 16. Gearing Is a measure of exposure. It relates the number of CFDs that can be purchased forthe same price as the actual stock.016Margin and gearing
17. 17. ExampleA CFD of a share trading R100 has a margin requirement of10%.017Margin and gearing
18. 18. ExampleA CFD of a share trading R100 per share has a marginrequirement of 10%.That means we need to put down a deposit of 10% to tradethe share018Margin and gearing
19. 19. ExampleA CFD of a share trading R100 per share has a marginrequirement of 10%.That means we need to put down a deposit of 10% to tradethe shareSo we need to put down a R10 deposit per share that wewant to trade which has a value of R100019Margin and gearing
20. 20. ExampleThat means that at R10 we could buy 10 shares for theprice of 1 on the market (R100).020 Margin and gearing
21. 21. ExampleThat means that at R10 we could buy 10 shares for theprice of 1 on the market (R100).Therefore this stock at 10% margining is 10X geared.021 Margin and gearing
22. 22. ExampleThat means that at R10 we could buy 10 shares for theprice of 1 on the market (R100).Therefore this stock at 10% margining is 10X geared.Our buying power has been bumped up or leveraged 10times.022 Margin and gearing
23. 23. Why trade CFDs?023
24. 24. Why trade CFDs? CFDs provide the opportunity to trade the market on ashort term basis.024
25. 25. Why trade CFDs? CFDs provide the opportunity to trade the market on ashort term basis. Returns can be generated in both rising (going long)and declining (going short) markets.025
26. 26. Why trade CFDs? CFDs provide the opportunity to trade the market on ashort term basis. Returns can be generated in both rising (going long)and declining (going short) markets. CFDs have a much lower capital requirement (margin).026
27. 27. Why trade CFDs? CFDs provide the opportunity to trade the market on ashort term basis. Returns can be generated in both rising (going long)and declining (going short) markets. CFDs have a much lower capital requirement (margin). CFDs utilise leverage or gearing027
28. 28. Why trade CFDs? CFDs provide the opportunity to trade the market on ashort term basis. Returns can be generated in both rising (going long)and declining (going short) markets. CFDs have a much lower capital requirement (margin). CFDs utilise leverage or gearing Higher risk028
29. 29. Why trade CFDs? CFDs provide the opportunity to trade the market on ashort term basis. Returns can be generated in both rising (going long)and declining (going short) markets. CFDs have a much lower capital requirement (margin). CFDs utilise leverage or gearing Higher risk investors save on not having to pay regulatory costs as innormal exchange and clearing costs.029
30. 30. What are thecosts?030
31. 31. What are thecosts? Brokerage fees Interest (6% per annum)Note: interest is earned when going short!031
32. 32. Whats the difference? Lets look at the difference between a conventional equitytrade and a CFD trade032
33. 33. 033 Advantages & Disadvantages of CFD trading
34. 34. 034 Advantages & Disadvantages of CFD trading
35. 35. 035 Advatages & Disadvatages of CFD Trading
36. 36. Margin Required for SAB_CFD is 5%Trade price is R412,00Deposit required: 5% of R412,00 = R20.60 per share.Gearing or leverageShare Price/deposit = GearingR412,00/R20.60 = 20That means we are 20 times geared!
37. 37. 037 Example
38. 38. 038 Example
39. 39. CFD TRADE EQUITY TRADEEntry 41200Entry 41200Exited 42000 Exited 42000Profits 800 X 100 shares = R 800 Profits 800 X 100 shares = R 80029.7Utilized R2100 Utilized R41 200%Gained R800 / R2100 = 38.1%Gained R800/R41 200 = 0.2%039 Example
40. 40. Gearing simply increasesyour exposure in the marketfor a fraction of the price of the underlying instrument040
41. 41. You could literally get thesame exposure to the marketas your equity account by only risking 10% of it inCFDS041
42. 42. Vunani Private Clientstradingdesk@vunaniprivateclients.co.za 011 384 2920/3/7