1. Contracts For Difference

2. Contracts For Difference (CFD)
What is a CFD ? 1
How do they work? Margin & Gearing 2
Why Trade CFD’s? 3
Cost 4
Trade Comparison 5
Table of Contents

3. What is a CFD?
• A CFD is a “Contract for the Difference” . This is an
OTC (over-the-counter) product offered by institutions as
opposed to an exchange traded instrument. The profit or
loss is the difference between the entry price of the trade
and the exit price of the trade.
03 What is a CFD?

4. Exit/Entry Price
The difference between your
entry and exit price is the profit P
on the trade, which can be R
O
generated by either going long F
or by going short I
T
Entry /Exit Price
04 What is a CFD?

5. A CFD is a derivative of the
actual underlying instrument
05 What is a CFD?

6. • The CFD tracks the exact price movement of the
underlying instrument on the exchange where it trades.
06 What is a CFD?

7. • The CFD tracks the exact price movement of the
underlying instrument on the exchange where it trades.
• Underlying instrument categories are mainly shares,
commodities, indexes and forex.
07 What is a CFD?

8. • The CFD tracks the exact price movement of the
underlying instrument on the exchange where it trades.
• Underlying instrument categories are mainly shares,
commodities, indexes and forex.
• CFD’s can be traded both locally and internationally on
most liquid markets
08 What is a CFD?

9. • The CFD tracks the exact price movement of the
underlying instrument on the exchange where it trades.
• Underlying instrument categories are mainly shares,
commodities, indexes and forex.
• CFD’s can be traded both locally and internationally on
most liquid markets.
• CFD’s are traded on the principle of willing buyer / willing
seller.
09 What is a CFD?

10. How do they work?
010

11. The attraction is
GEARING
011 Margin and gearing

12. To understand GEARING we first
understand
MARGIN
012 Margin and gearing

13. • Margin is the deposit you need to put down to buy/sell the
shares
013 Margin and gearing

14. It’s like buying a
house
014 Margin and gearing

15. Gearing
• Is a measure of exposure.
015 Margin and gearing

16. Gearing
• Is a measure of exposure.
• It relates the number of CFD’s that can be purchased for
the same price as the actual stock.
016 Margin and gearing

17. Example
A CFD of a share trading R100 has a margin requirement of
10%.
017 Margin and gearing

18. Example
A CFD of a share trading R100 per share has a margin
requirement of 10%.
That means we need to put down a deposit of 10% to trade
the share
018 Margin and gearing

19. Example
A CFD of a share trading R100 per share has a margin
requirement of 10%.
That means we need to put down a deposit of 10% to trade
the share
So we need to put down a R10 deposit per share that we
want to trade which has a value of R100
019 Margin and gearing

20. Example
That means that at R10 we could buy 10 shares for the
price of 1 on the market (R100).
020 Margin and gearing

21. Example
That means that at R10 we could buy 10 shares for the
price of 1 on the market (R100).
Therefore this stock at 10% margining is 10X geared.
021 Margin and gearing

22. Example
That means that at R10 we could buy 10 shares for the
price of 1 on the market (R100).
Therefore this stock at 10% margining is 10X geared.
Our buying power has been bumped up or leveraged 10
times.
022 Margin and gearing

23. Why trade CFD’s?
023

24. Why trade CFD’s?
• CFD’s provide the opportunity to trade the market on a
short term basis.
024

25. Why trade CFD’s?
• CFD’s provide the opportunity to trade the market on a
short term basis.
• Returns can be generated in both rising (going long)
and declining (going short) markets.
025

26. Why trade CFD’s?
• CFD’s provide the opportunity to trade the market on a
short term basis.
• Returns can be generated in both rising (going long)
and declining (going short) markets.
• CFD’s have a much lower capital requirement (margin).
026

27. Why trade CFD’s?
• CFD’s provide the opportunity to trade the market on a
short term basis.
• Returns can be generated in both rising (going long)
and declining (going short) markets.
• CFD’s have a much lower capital requirement (margin).
• CFD’s utilise leverage or gearing
027

28. Why trade CFD’s?
• CFD’s provide the opportunity to trade the market on a
short term basis.
• Returns can be generated in both rising (going long)
and declining (going short) markets.
• CFD’s have a much lower capital requirement (margin).
• CFD’s utilise leverage or gearing
• Higher risk
028

29. Why trade CFD’s?
• CFD’s provide the opportunity to trade the market on a
short term basis.
• Returns can be generated in both rising (going long)
and declining (going short) markets.
• CFD’s have a much lower capital requirement (margin).
• CFD’s utilise leverage or gearing
• Higher risk
• investors save on not having to pay regulatory costs as in
normal exchange and clearing costs.
029

30. What are the
costs?
030

31. What are the
costs?
• Brokerage fees
• Interest (6% per annum)
Note: interest is earned when going short!
031

32. What’s the
difference?
Let’s look at the difference between a conventional equity
trade and a CFD trade
032

33. 033 Advantages & Disadvantages of CFD trading

34. 034 Advantages & Disadvantages of CFD trading

35. 035 Advatages & Disadvatages of CFD Trading

36. Margin Required for SAB_CFD is 5%
Trade price is R412,00
Deposit required: 5% of R412,00 = R20.60 per share.
Gearing or leverage
Share Price/deposit = Gearing
R412,00/R20.60 = 20
That means we are 20 times geared!

37. 037 Example

38. 038 Example

39. CFD TRADE EQUITY TRADE
Entry 41200 Entry 41200
Exited 42000 Exited 42000
Profits 800 X 100 shares = R 800 Profits 800 X 100 shares = R 800
29.7
Utilized R2100 Utilized R41 200%
Gained R800 / R2100 = 38.1% Gained R800/R41 200 = 0.2%
039 Example

40. Gearing simply increases
your exposure in the market
for a fraction of the price of
the underlying instrument
040

41. You could literally get the
same exposure to the market
as your equity account by
only risking 10% of it in
CFD’S
041

42. Vunani Private Clients
tradingdesk@vunaniprivateclients.co.za
011 384 2920/3/7