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Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996 Trading Equity Derivatives Webinar Shaun.

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Presentation on theme: "Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No. 42996 Trading Equity Derivatives Webinar Shaun."— Presentation transcript:

1 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Trading Equity Derivatives Webinar Shaun van den Berg Head of Client Education Wednesday, 26 th June h00 until 14h00

2 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No 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 Presenter: Shaun van den Berg

3 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Trader Matrix Trading Tools Terminology Example of a Long Trade Example of a Short Trade Introduction to Equity Derivatives Presenter: Shaun van den Berg

4 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Trader Matrix Prudent High Reward / Low Risk Speculative Low Reward / High Risk Aggressive High Reward / High Risk Conservative Low Reward / Low Risk REWARDREWARD High Low High Low RISK Presenter: Shaun van den Berg

5 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Watch List (Top 100 shares) / Fundamentals – Top 40 shares / Mid cap shares – Mining & Resources / Financials / Industrials Technical Analysis – Price charts (Candlesticks) / 50 & 200-day Moving Average – Trend lines / Support & Resistance / Fibonacci retracement levels – Chart Patterns – Stochastic & RSI indicators Trading platform – Mobility (Trade anywhere) / Place orders after hours – Direct Market Access (DMA) / Price Alerts & Stop Orders Risk & Money Management – Stoploss & Position Size Trading Tools Presenter: Shaun van den Berg

6 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Equity Derivative - Derives its value on underlying share (e.g. SOL, AGL) Top 100 JSE listed shares – “Go Long” – Rising prices – “Go Short” – Falling prices – “Long Only” – No Scrip available for shorting Initial Margin – ± 15% deposit 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. Gearing or Leverage – Borrowing funds – For each cent the share moves in your favour, you are multiplying the profits by up to 10 times. – Gearing magnifies your returns. Introduction to Equity Derivatives Presenter: Shaun van den Berg

7 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Terminology Open a position – Long position – Buying (Rising prices) – Short position – Selling (Falling prices) Close a position – Do the opposite trade – Sell if you hold a long position – Buy if you hold a short position Roll a position (SSF) – The automatic closing & re-opening – Next dated expiry contract – Same underlying instrument Presenter: Shaun van den Berg

8 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No 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

9 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No 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 Presenter: Shaun van den Berg

10 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Comparable to Equities INVESTOR A (Share Trader) INVESTOR B (SSFs Trader) Confident that Sasol shares will increase. She has R which she can invest. Sasol’s share price is R350, therefore she buys 100 shares. 3 months later the price has increased by 10% so she sells her shares to make a R3 500 profit. Her return on her investment is 10%. The initial margin set by the broker is R6 000 which is paid by the buyer. Sasol’s share price is R350, therefore she buys 1 contract. After 3 months the price has increased by 10% & the investor closes out his position & sells out of the Sasol SSF contract. His profit is R3 500 but his return on his investment is 58%. Presenter: Shaun van den Berg

11 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No 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. Presenter: Shaun van den Berg

12 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No 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. Dividend Neutral Contracts Long Trades – N-contract = R100 – Q-contract = R95 plus interest – Plus F-Contract = R5 Short Trades – N-contract = R100 – Q-contract = R95 plus interest – Less F-Contract = R5 DividendR5 SSF Price R95 Presenter: Shaun van den Berg

13 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Events initiated by a listed company - Affects share price. Typically agreed upon by board & authorised by the shareholders. Processed onto SSF contracts by the JSE (SAFEX) Owners of SSF positions will not be prejudiced by movements in the underlying instruments. Examples include: – Name changes - No direct financial impact on shareholders. – Rights Issues – Unbundling or Spin-offs – Mergers & Acquisitions – Consolidations = R1 share consolidated 1: 10 = R10 – Share splits – Indirect impact - Increased liquidity - Price rises. R100 share split 10:1 = R10 – Dividends – Have direct financial impact on the shareholders. Corporate Actions Presenter: Shaun van den Berg

14 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Naspers R200 Presenter: Shaun van den Berg

15 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Hedging using SSF Equity Position NPN Equity Position NPN SSF Position -5 NPN contracts SSF Position -5 NPN contracts Share Price: -R200 -R200 -R200 -R200 Loss: 500 x R200 = -R Loss: 500 x R200 = -R Profit: 500 x R200 = +R Profit: 500 x R200 = +R

16 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No SSF Contracts Available Presenter: Shaun van den Berg

17 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No SSF Trading Platform Presenter: Shaun van den Berg

18 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No New Order (Margin) Step 1: Click New Order Step 2: Enter Code & Go Presenter: Shaun van den Berg

19 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No New Order (SSF) Step 4: Select Side Step 5: Enter Contracts Step 6: Enter Price in cents Step 3: Select Order Step 7: ClickSubmit Presenter: Shaun van den Berg

20 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Price Watch & Stop Order Step 1: Click New Order Step 2: Select Price Watch Step 3: Above or Below Step 4: Enter Price Step 5: SelectClose Step 6: Enter Contracts Step 7: Enter Price Step 8: ClickSubmit Presenter: Shaun van den Berg

21 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No 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 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. Presenter: Shaun van den Berg

22 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Pro’s & Con’s of Trading SSFs Capital Efficient Low trading costs Hedge your current portfolio Trading Platform – DMA – After hours – Stops AdvantagesDisadvantages Interest Payable Quarterly Rolling Fee Dividend Neutral No voting rights Gearing & Risk Presenter: Shaun van den Berg

23 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Trading Index Futures (ALSI & ALMI) Presenter: Shaun van den Berg

24 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No ALSI futures are a futures contract based on the Top 40 index 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 R29 250) Profits or Losses - Depends on where you exit trade based on the R10 per point value. Expiry Date – No rollover (Closeout) ALSI Index Future Presenter: Shaun van den Berg

25 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No ALSI Index Future ±200 Points Presenter: Shaun van den Berg

26 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No 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 = R2 925 R5 (including VAT) is charged per ALMI contract traded. No booking fee Expiry Date – No rollover (Closeout) ALMI Index Future Presenter: Shaun van den Berg

27 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No 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 Regulated by the JSE – Counter party risk Summary: SSF Presenter: Shaun van den Berg

28 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Trading Equity Derivatives - Contracts for Difference (CFD) What are CFDs? Trading Costs CFD versus Equities Trading CFD Pro’s & Con’s of Trading CFDs Presenter: Shaun van den Berg

29 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No 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 Presenter: Shaun van den Berg

30 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No You do not have to pay the full price of the underlying shares. You only pay enough money to cover the initial margin or deposit into your account. You may only need R to purchase CFDs up to a value of R If your position rises to R (15% rise), you will in fact make a 100% return on your trade, as you only deposited R initially. Geared Product Presenter: Shaun van den Berg

31 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Trading Costs Minimum Cost Value - Each new CFD position opened needs to have a minimum cost value of R – R3 750 (15%) initial margin on a Top 40 shares – R4 375 (17.5%) initial margin for Top shares. 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%) Presenter: Shaun van den Berg

32 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No CFD versus Equities CFD Trade Equity Trade Details Instrument Exposure Brokerage Cost STT & STRATE Price (Cents) Initial Margin 15% % of Exposure Total Costs 14% VAT 500 ABC shares 6000c 6000c R None R R85.92 R37.45R16.80 R136.80R %1.30% R4 500 R5 250 Initial Margin 17.5% R R Presenter: Shaun van den Berg

33 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Trading CFD Buy 500 AVI 5529c Exposure = R Initial Margin Required = 17.5% x R = R Gearing = 5.71 times = R / R Brokerage = R x 0.4% = R –Equity trade = 0.9% x R = R225.00/ 0.85% x R2 645 = R22.48 = R (Minimum R98) 14% VAT = R34.64 = Total R Interest on Cost: SAFEX rate 4.73% +2% = 6.73% –R x 6.73% = R /365= R5.09 per day Interest on Initial Margin: SAFEX 4.73%-2% = 2.73% –R x 2.73% p.a. = R / 365 = 0.36 cents per day. Presenter: Shaun van den Berg

34 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Regulated by JSE/FSB Exchanged traded product Expiry Date= Rollover costs Set principle amount Interest agreed upfront Wholesale interest rates Best execution Free markets Transparent Guaranteed by SAFCOM No dividend paid/received Can take physical delivery Comparison between SSFs &CFDs SSF CFD Unregulated Trades OTC No Expiry Date Principle amount could change Interest fluctuates daily Retail interest rates No best execution obligation Captive markets Opaque Not guaranteed by SAFCOM Manufactured dividends Never physical delivered Source: Presenter: Shaun van den Berg

35 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No CFD Available Presenter: Shaun van den Berg

36 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No CFD Trading Platform Presenter: Shaun van den Berg

37 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No BATS (BTI) Presenter: Shaun van den Berg

38 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No New Order (Margin) Step 1: Click New Order Step 2: Enter Code & Go Presenter: Shaun van den Berg

39 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No New Order Step 4: Select Side Step 5: Enter Quantity Step 6: Enter Price in cents Step 3: Select Order Step 7: ClickSubmit Presenter: Shaun van den Berg

40 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Price Watch & Stop Order Step 1: Click New Order Step 2: Select Price Watch Step 3: Above or Below Step 4: Enter Price Step 5: SelectClose Step 6: Enter Contracts Step 7: Enter Price Step 8: ClickSubmit Presenter: Shaun van den Berg

41 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No 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 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. Presenter: Shaun van den Berg

42 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Capital Efficient – No fixed quantities (R25 000) Low trading costs No expiry date – 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 Pro’s & Con’s of Trading CFDs AdvantagesDisadvantages High minimum trade values Scrip lending fees Gearing & Risk No voting rights Presenter: Shaun van den Berg

43 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Example of a Long Trade Instrument: CFD & SSF Direction: Buy / Long Entry: 28620c Take Profit: 31000c Stop loss: 27700c Risk/ Reward: 1:2.58 Potential Profit: 2380c per share 8.31% (55.40%) *15.00% Initial Margin R Capital 2% Risk Capital = R2000 Stop loss = 920c = R2000/ 920c Position size = 217 shares 2 SSF contracts Presenter: Shaun van den Berg

44 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Example of a Long Trade Instrument: CFD & SSF Direction: Buy / Long Entry: 38000c Take Profit: 39600c Stop loss: 37500c Potential Risk: 500c per share Potential Profit: 1600c per share Risk/ Reward: 1: % (28.06%)* R Capital 2% Risk Capital = R2000 Stop loss = 500c = R2000/ 500c Position size = 400 shares 4 SSF contracts Presenter: Shaun van den Berg

45 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Example of a Short Trade Instrument: SSF only Direction: Sell / Short Entry: 19300c Take Profit: 17800c Stop loss: 19900c Risk/ Reward: 1:2.50 Potential Profit: 1500c per share 7.77% (92.59%)* *R1620 Initial Margin R Capital 2% Risk Capital = R2000 Stop loss = 600c = R2000/ 600c Position size = 333 shares 3 SSF contracts Presenter: Shaun van den Berg

46 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Example of a Short Trade Instrument: SSF only Direction: Sell / Short Entry: 49345c Take Profit: 47718c Stop loss: 49975c Potential Risk: 630c per share Potential Profit: 1627c per share Risk/ Reward: 1: % (42.36%)* *R3840 Initial Margin R Capital 2% Risk Capital = R2000 Stop loss = 630c = R2000/ 600c Position size = shares (CFD) 3 SSF contracts Presenter: Shaun van den Berg

47 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Review the PowerPoint presentation Read info available on PSG Online website 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 Summary & Conclusion Presenter: Shaun van den Berg

48 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Contact Us Thank You Shaun van den Berg (011)

49 Online Securities Ltd. Is a member of the JSE Ltd. and an authorised Financial Services Provider, FSP No Disclaimer This publication has been issued by PSG Online. It is confidential and issued for the information of clients only. It shall not be reproduced in whole or in part without our permission. The information contained herein has been obtained from sources which and persons whom we believe to be reliable but is not guaranteed for accuracy, completeness or otherwise. Opinions and estimates constitute our judgement as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This report is provided for informational purposes only. No information contained herein, no opinion expressed and no recommendation made constitutes a representation by us or a solicitation for the purchase of any of the securities mentioned herein and we have no responsibility whatsoever arising here from or in consequence hereof. Securities, financial instruments or strategies mention herein may not be suitable for all investors and investors must make their own investment decisions using their own independent advisers as they believe necessary and based upon their specific financial situations and investment objectives. The employees of PSG Online may from time to time own securities mentioned herein. Analyst Certification The research analyst who prepared this report certifies that the view expressed herein accurately reflect the research analyst’s personal views about the subject security and issuer and that no part of his compensation was, is or will be directly or indirectly related to specific recommendations or views contained in this report.


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