Trading Equity Derivatives Webinar
Shaun van den Berg
Head of Client Education
Wednesday, 2nd October 2013
13h00 until 14h00
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Agenda
• Introduction to Equity Derivatives
• Terminology
• Single Stock Futures (SSF)
• Equity SSF
• List of SSF contracts available
• Index Futures (ALSI & ALMI)
• Contracts for Difference (CFD)
• What are CFDs?
• List of CFD available
• Examples of Long & Short trades
• Summary & Conclusion
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Introduction to Equity Derivatives
Terminology
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Terminology
• Equity Derivative - Derives its value on underlying share (e.g. SOL, AGL)
• Top 100 JSE listed shares (Top 40 Large Caps & Next 60 Mid Caps)
• Trade a Direction
– “Go Long” – Rising prices
– “Go Short” – Falling prices
– “Long Only” – No Scrip available for shorting
• Initial Margin – ± 15% deposit
• Gearing or Leverage – Borrowing funds (15% deposit to have 100% exposure)
– For each cent the share moves in your favour – Multiply by up to 10 times.
– Gearing magnifies your profits / returns.
• Variation Margin – Unrealised profits & losses
– Processed daily - Mark-to-Market (M-t-M)
– Cash account negative – Margin Call
• You must deposit variation margin / close out the contract.
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Terminology
• Open a position
– Opening a Long position – Buying (Rising prices)
– Opening a Short position – Selling (Falling prices)
• Closing a position – Do the opposite trade
– Sell if you hold a long position
– Buy if you hold a short position
• Rolling a position (Equity SSF)
– The automatic closing & re-opening
– Next dated expiry contract
– Same underlying instrument
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Single Stock Futures (SSFs)
What are Single Stock Futures (SSF)?
Comparable to Equities
Trading Costs
Dividend Neutral Contracts
Hedging using SSF
SSF Trading Platform
Pro’s & Con’s of Trading SSFs
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
What are Single Stock Futures (SSF)?
• Regulated by the JSE
• A standardised contract
– Standard quantity (100 shares)
• Derivative - Derives its value on underlying share
e.g. ANG, BIL, SOL
• Top 100 JSE listed shares
• Expires on the third Thursday of every quarter:
– March, June, September & December.
• Initial Margin – ± 15% deposit
• Gearing ± 6 times
• Variation Margin – Adverse price movement
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Comparable to Equities
INVESTOR A (Share Trader)
INVESTOR B (SSFs Trader)
Confident that Sasol shares
will increase.
Confident that Sasol shares
will increase.
She has R48 000
which she can invest.
Sasol’s share price is R480,
therefore he buys 1 contract.
Sasol’s share price is R480,
therefore she buys 100 shares.
The initial margin set by the
broker is R5 478 which
is paid by the buyer. (8.76 gearing)
3 months later the price has
increased by 10%
so she sells her shares to
make a R4800 profit.
After 3 months the price has
increased by 10% & the trader
closes out his
position & sells out of the
Sasol SSF contract.
Her return on her
investment is 10%.
His profit is R4 800
but his return on his
investment is 87.62% (R4800/R5478)
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Trading Costs
• Brokerage - Charged at 0.4% (excluding VAT) of the value of the transaction.
• Market Makers Fee – Charged at 0.1% (excluding VAT).
– The total brokerage charge is 0.57% (including VAT).
• Booking Fee - R60 is charged per SSF contract when a new position is opened
per day
– You pay only for the opening leg of all transactions
– Only once per day per SSF.
– If you buy a Sasol SSF 10 times on one day; you will only pay the R60 once.
• Interest Payable - Interest paid on the SSF cost value - determined daily by
the market maker - ruling SAFEX rates.
• Interest Received – Interest will be paid on cash balances in your SSF trading
account at a rate linked to the JSE Trustees rate.
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Dividend Neutral Contracts
• Dividends Expected in any quarter
– Priced into SSFs
– Includes expected interest to be received on dividend payment.
• Traders do not receive dividends as a cash payment even though they do
benefit from them.
• Long Trades
– N-contract = R100
– Q-contract = R95 plus interest
– Plus F-Contract = R5 Received
• Short Trades
– N-contract = R100
– Q-contract = R95 plus interest
– Less F-Contract = R5 Paid out
Dividend
R5
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
SSF Price
R95
Presenter: Shaun van den Berg
Dividend Neutral Contracts
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Hedging using SSF: Naspers (NPN)
R200
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Hedging using SSF
Equity Position
+ 500 NPN
SSF Position
-5 NPN contracts
Share Price:
-R200
Share Price:
-R200
Loss:
500 x R200
= -R100 000
Profit:
500 x R200
= +R100 000
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Pro’s & Con’s of Trading SSFs
Advantages
• Capital Efficient
• Low trading costs
• Hedge your current
portfolio
• Trading Platform
Disadvantages
•
•
•
•
•
Interest Payable
Quarterly Rolling Fee
Dividend Neutral
No voting rights
Gearing & Risk
– DMA
– After hours
– Stops
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Single Stock Futures (SSFs)
SSF Contracts available
SSF Trading Platform
• Holdings
• Placing a New Order
• Placing a Price Watch & Stop Order
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
SSF Contracts Available
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
SSF Trading Platform
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
SSF Trade: Old Mutual (OMN)
Stop @ 3100c
Entry @ 3035c
Target Price @ 2800c
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
New Order (Margin) (Old Mutual) (OML)
Step 1:
Click
New
Order
Step 2:
Enter
Code &
Go
2x100x3035c=
R6070 exposure
R390 x 2 =
R780 margin =
7.78 gearing
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
New Order (SSF)
Step 3:
Select
Order
Step 4:
Select
Side
Step 5:
Enter
Contracts
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Step 6:
Enter
Price in
cents
Step 7:
Click
Submit
Presenter: Shaun van den Berg
Price Watch & Stop Order
Step 1:
Click New
Order
Step 2:
Select
Price
Watch &
Stop Order
Step 4:
Enter
Price
Step 3:
Above or
Below
Step 5:
Select
Close
Step 6:
Enter
Contracts
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Step 7:
Enter
Price
Step 8:
Click Submit
Presenter: Shaun van den Berg
Note: SSF Price Watch & Stop Order
• The Price Watch AND the Stop Order have to be used together
to execute a trade.
– Otherwise, a Price Alert just sends an email or SMS to you.
• The order will reflect in your order book (on the web) but only
enter the trading order book (JSE) when the trigger price is
reached.
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Trading Index Futures (ALSI & ALMI)
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
ALSI Index Future
•
•
•
•
•
•
•
•
•
ALSI futures are a futures contract based on the Top 40 index
Trade a Direction
• Go Long - Buy the index & Sell later (Make money as prices rise).
• Go Short - Sell the index & Buy back later (Falling prices).
High liquidity – Very popular
Cheap – R25 (including VAT) per ALSI index futures contract traded.
– No booking fee.
Tight spreads – The difference between bids & offers are narrow.
Every index point is worth R10 (100 point move = R1 000 profit or loss)
Initial Margin
– Trade at the index price
– Pay an initial margin as set per SAFEX plus the PSG Online variation margin
(currently R33 075)
Profits or Losses - Depends on where you exit trade based on the R10 per point value.
Expiry Date – No rollover (Closeout)
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
ALMI Index Future
•
•
•
•
•
•
•
•
•
Mini version of the ALSI futures (10%)
Liquidity – Improving
Spreads - Improving
Market Maker - As there is a market maker this index will track
the ALSI futures.
Every index point is worth R1
Initial Margin required is a tenth of the ALSI futures margin
= R3 307
R5 (including VAT) is charged per ALMI contract traded.
No booking fee
Expiry Date – No rollover (Closeout)
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Trading Index Futures (ALSI & ALMI)
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
ALSI Index Future
±200 Points
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Trading Index Futures (Central Order Book)
Step 2:
Click Order
Book
Trades
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Step 1:
Click
New
Order
Presenter: Shaun van den Berg
Trading Index Futures (ALSI & ALMI)
Step 3:
Select
Drop
Down
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Trading Index Futures (ALSI)
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Trading Index Futures (ALMI)
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Trading Index Futures (Holdings)
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Summary: SSF
• Trading SSFs offers a new dimension
– Long & Short trades
– Hedge & Speculate
• Gearing – Attractive to small trader
– Equity SSF - Swing trader
–Top 100 shares - Minimum outlay & cost
– ALSI Index futures - Serious day trader
–ALMI Index future – Stepping stone
• Regulated by the JSE
– Counter party risk
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Trading Equity Derivatives - Contracts for Difference (CFD)
What are CFDs?
Trading Costs
CFD versus Equities
Trading CFD
Pro’s & Con’s of Trading CFDs
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
What are CFDs?
• Contracts for difference (CFDs) are contracts …
– Two parties (i.e. client & PSG Online)
– Settled at the close of the contract
– Difference between opening & closing price.
•
•
•
•
Derivative - It derives its value on an underlying share e.g. ANG, BIL, SOL
“Go Long & Short” – Up or down
“Long Only” – No Scrip available for shorting
Top 100 JSE listed shares
• Initial Margin
– 15% on Top 40
– 17.5% on next 60
• Variation Margin – “Top-up” - Adverse price movement
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Trading Costs
•
•
•
•
•
•
Minimum Cost Value - Each new CFD position opened needs to have a minimum cost
value of R25 000
– R3 750 (15%) initial margin on a Top 40 shares
– R4 375 (17.5%) initial margin for Top 41-100 shares.
Variation Margin - “Top-up” - Adverse price movement
Brokerage – Commission is 0.4% (excluding VAT).
– Open to negotiate brokerage rates for large, active traders.
Interest – Interest is charged on the total value of the open position at SAFEX +2%.
– This is usually equal to around Prime -2%.
Scrip Lending Fee
– A fee of 1.5% per annum is charged for short positions
– Charged per day on open positions
– Minimum of R250 per position.
Financing at competitive rates (CFD)
– Current borrowing rate 6.50% (± Prime –2%)
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
CFD Trading Costs
•
•
•
•
Buy 1000 Old Mutual (OML) shares @ 3042c
Exposure = R30 420.00
Initial Margin Required = 15% x R30 420.00 = R4 563.00
Gearing = 6.67 times = R30 420 / R4 563
•
Brokerage = R30 420.00 x 0.4% = R121.68
– Equity trade = 0.9% x R25 000 = R225.00/ 0.85% x R5 420 = R45.07
= R270.07 (Minimum R98)
VAT = R121.68 x 14%= R17.04 = Total R138.72
•
•
•
Interest on Cost: SAFEX rate 4.73% +2% = 6.73%
– R30 420.00 x 6.73% = R2 047.27 /365= R5.61 per day
Interest on Initial Margin: SAFEX 4.73%-2% = 2.73%
– R4 563.00 x 2.73% p.a. = R124.57 / 365 = 0.34 cents per day.
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
CFD versus Equities
Details
CFD Trade
Equity Trade
Instrument
500 ABC shares
500 ABC shares
Price (Cents)
6000c
6000c
Exposure
R30 000
R30 000
Initial Margin 15%
R4 500
R30 000
Initial Margin 17.5%
R5 250
R30 000
Brokerage Cost
R120.00
R267.50
14% VAT
R16.80
R37.45
STT & STRATE
None
R85.92
Total Costs
R136.80
R390.87
% of Exposure
0.46%
1.30%
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Comparison between SSFs &CFDs
CFD
SSF
•
•
•
•
•
•
•
•
•
Regulated by JSE/FSB
Exchanged traded product
Expiry Date= Rollover costs
Set principle amount
Interest agreed upfront
Wholesale interest rates
Guaranteed by SAFCOM
No dividend paid/received
Can take physical delivery
• Unregulated
• Trades OTC
• No Expiry Date
• Principle amount could change
• Interest fluctuates daily
• Retail interest rates
• Not guaranteed by SAFCOM
• Manufactured dividends
• Never physical delivered
Source: www.jse.co.za
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
CFD Available
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
CFD Trading Platform
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
CFD Trade: Old Mutual (OML)
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
New Order (Margin)
Step 2:
Enter
Code &
Go
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Step 1:
Click
New
Order
Presenter: Shaun van den Berg
New Order
Step 3:
Select
Order
Step 4:
Select
Side
Step 5:
Enter
Quantity
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Step 6:
Enter
Price in
cents
Step 7:
Click
Submit
Presenter: Shaun van den Berg
Price Watch & Stop Order
Step 1:
Click
New
Order
Step 2:
Select Price
Watch &
Stop Order
Step 4:
Enter
Price
Step 3:
Above
or
Below
Step 5:
Select
Close
Step 6:
Enter
Contracts
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Step 7:
Enter
Price
Step 8:
Click
Submit
Presenter: Shaun van den Berg
Note: CFD Price Watch & Stop Order
• The Price Watch AND the Stop Order have to be used
together to execute a trade.
– Otherwise, a Price Alert just sends an email or SMS to you.
• The order will reflect in your order book (on the web)
but only enter the trading order book (JSE) when the
trigger price is reached.
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Pro’s & Con’s of Trading CFDs
Advantages
• Capital Efficient
– No fixed quantities (R25 000)
• Low trading costs
• No expiry date
Disadvantages
•
•
•
•
High minimum trade values
Scrip lending fees
Gearing & Risk
No voting rights
– No rollover costs
– Save the annual 1% expense
– Ideal for the Position Trader.
• Hedge your current portfolio?
• All the benefits
– Capital growth / Dividend income
• Trading Platform
– DMA / After hours
– Stops
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Trading Equity Derivatives
Examples of Long Trades
Examples of Short Trades
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Example of a Long Trade (ACP) (20130826)
Instrument: CFD & SSF
Direction: Buy / Long
Entry: 4160c
Take Profit: 4624c
Stop loss: 4000c
Risk/ Reward: 1:2.34
Potential Profit:
464c per share
11.15% (63.71%)
R100 000 Capital
2% Risk Capital = R2000
Stop loss = 920c
= R2000/ 920c
Position size = 217 shares
2 SSF contracts
*17.5% Initial Margin / R708 per contract
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Example of a Long Trade (ACP) (20130925)
Revised Take Profit:
4470c per share (4624c)
7.45% (11.15%)
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Example of a Long Trade (MTN) (20130911)
Instrument: CFD & SSF
Direction: Buy / Long
Entry: 18450c
Take Profit: 20500c
Stop loss: 17480c
Potential Risk:
970c per share
Potential Profit:
2050c per share
Risk/ Reward: 1:2.11
11.11% (74.07%)*
R100 000 Capital
2% Risk Capital = R2000
Stop loss = 970c
= R2000/ 970c
Position size = 206 shares
2 SSF contracts
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Example of a Long Trade (MTN) (20130925)
Revised Take Profit:
19317c per share (20500c)
4.70% (11.11%)
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Example of a Short Trade (MMI) (20130927)
Instrument: SSF only
Direction: Sell / Short
Entry: 2479c
Take Profit: 2285c
Stop loss: 2550c
Risk/ Reward: 1:2.37
Potential Profit:
194c per share
7.83% (44.74%)*
R100 000 Capital
2% Risk Capital = R2000
Stop loss = 71c
= R2000/ 71c
Position size = 2817
shares
28 SSF contracts
*17.5% Initial Margin / R243 per contract
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Example of a Short Trade (RDF) (20130930)
Instrument: SSF only
Direction: Sell / Short
Entry: 981c
Take Profit: 867c
Stop loss: 1025c
Potential Risk:
44c per share
Potential Profit:
114c per share
Risk/ Reward: 1:2.59
11.62% (66.40%)*
R100 000 Capital
2% Risk Capital = R2000
Stop loss = 44c
= R2000/ 44c
Position size = 4545
shares (CFD)
45 SSF contracts
*17.5% Initial Margin / R85 per contract
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Summary & Conclusion
• Review the PowerPoint presentation
• Read info available on PSG Online website (Trading)
• Geared positions - Capital Efficient / More affordable
• Open SSF & CFD account (R1-Million)
• Getting Started: Trading Equity Derivatives
– Do your homework (Product knowledge)
– Paper trade
– Start small – Gain confidence
• Remember: Risk & Money management & Control emotions
• Good Luck & Happy Trading!
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
Presenter: Shaun van den Berg
Contact Us
Thank You
Shaun van den Berg
Shaunvdb@psg.co.za
(011) 996 5254
Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996
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Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996