Introduction to WEN Products

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(No Transcript)
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PSG Product Overview
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Presentation Overview

• Market Jargon
• What is a CFD ?
• Key features of CFD product
• Comparison with traditional shares
• Comparison with other derivatives
• Pros Cons od trading CFDs
• CFD Trading examples
• Investor risks and obligations

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Market Jargon

• Investor
• Trader
• Derivatives
• Long
• Short
• Gearing
• Margin

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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.

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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 short-term 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.

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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.

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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.

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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.

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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 (gt30 LSE volume trade)

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What is a Contract For Difference?
Buy shares

Client
Deliver CFD
Buy shares
Deliver shares
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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

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CFD Product Description

• Offer
• Long and Short CFDs 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

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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 T1 Settlement Period Settled T5
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
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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
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Comparison with other Derivatives
Warrant Future CFD
Regulated By JSE By JSE No Regulation
Risk Profile Lower than Futures CFDs 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)
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Pros Cons of CFD trading
Advantages
Disadvantages

• Low trading costs
• No expiry date
• Hedge your current portfolio
• All the benefits

• Gearing Risk
• No voting rights

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CFD Example
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Profitable Long CFD Position
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 _at_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
356
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 _at_ 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)
309
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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
356
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Non-profitable Long CFD
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 _at_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 _at_ 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)
356
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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
356
309
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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

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CFD Example
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Profitable Short CFD Position
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 _at_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
356
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 _at_ 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)
309
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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
356
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Non-profitable Short CFD
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 _at_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
356
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 _at_ 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)
309
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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
356
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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

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Investor Risk and Obligations

• CFDs provide investors with leveraged exposure
  to an underlying security. This has the effect
  of magnifying profits and losses and consequently
  trading in CFDs 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 CFDs 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.

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PSG Online Sitemap
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Top 100 Shares Margin
List reset after each Quarterly futures Close out
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CFD Holdings
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CFD Order Book
Status Description
X Cancelled
M Matched
O Open Order
AA Awaiting Authorization
OM Partially Matched Order
XM Partly Matched Cancelled Order
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CFD Share Statement
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CFD Margin Statement
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CFD Financial Statement
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Summary Conclusion

• CFD trading is only suitable for experienced
  sophisticated clients.
• No admin cost (R40 p.m.)
• Open a CFD trading account
• Happy trading!

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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
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Questions?