PSG Product Overview Presentation Overview Market Jargon What is a CFD ? Key features of CFD product Comparison with traditional shares Comparison with

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)


Client

Buy shares

Buy shares Deliver

shares

Deliver CFD


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



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





Total R357 623.36 ∑ (consideration, Brokerage, VAT)


Break-Even on Buy R357.62 Total/number shares

Percentage move needed 0.46% (breakeven price/ Purchase price)-1





VAT @ 14% R173.04 Brokerage * 14%


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%


Interest Cost (R618.74) (Total consideration * 12.63% ) * (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


Consideration R356 000.00 Number shares * selling price





Break-Even on Sell R354.38 Total/number shares






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


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


Consideration R309 000.00 Number shares * selling price





Break-Even on Sell R307.59 Total/number shares






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


Interest Cost R363.63 (Total consideration* 8.63%)*(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?

Documents

PSG Product Overview Presentation Overview Market Jargon What is a CFD ? Key features of CFD product Comparison with traditional shares Comparison with