Trading Cfds

8/10/2019 Trading Cfds

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Contracts forDifference



CFDs explained

If you are interested in trading CFDs (Contracts for Difference)or you simply want to know what they are and how they work,you’re in safe hands. Guardian’s CFD Team are knowledgeableand experienced at trading all types of CFDs.

A CFD is simply an agreement to exchange the difference in valueof a particular share (or other nancial instrument) between thetime at which the contract is opened and the time at which itis closed.

In the case of share CFDs unlike a traditional share when youopen a position you are not required to pay for the full value ofthe trade but rather you are required to deposit collateral. Thisis known as the Initial Margin, which can be as low as 5% of thepurchase price. In recent years there has been a dramatic increasein the use of CFDs, they have in a short space of time become theinstrument of choice for short term stock market investors. If youare not interested in high risk investments then it is probably safeto say that CFDs are not suitable for you and we would stronglyadvise that you do not attempt to trade these products.

Prot from rising or falling markets.3

No stamp duty is payable (saving 0.5% compared to3

traditional shares).Trade on margin allowing you to leverage your capital.3

Trade Global Equities, Indices, FX and Commodities on a3

single account with multiple currencies.Limit and manage risk using Stop Loss and Limit Order3

facilities.No xed expiry date.3

Low commissions.3

WhatareCFDs?

BenetsofCFDs



CFDs explained

Key FeaturesofCFDs

Traded on Margin

Rather than pay the full value of a transaction you only need topay a percentage when opening the position. This is referred toas ‘Initial Margin’. The key point is that the margin allows leverage,so that you can access a larger amount of shares than you wouldbe able to, if buying or selling the shares themselves. The marginon all open positions must be maintained at the required levelin order to keep the position open. If a position moves againstyou and reduces your cash balance so that you are below therequired margin level on a particular trade, you will be subjectto a ‘Margin Call’ and will have to pay additional money into youraccount to keep the position open or you may be forced to closeyour position.

Trade in Rising or Falling Markets

CFDs allow you to trade ‘Long’ or ‘Short’. A Long trade is whereyou ‘Buy’ an asset with the expectation that it will rise, just as youwould when buying a normal share. A Short trade is where you‘Sell’ an asset that you do not own in the expectation that theprice will fall and you can Buy the asset back at a cheaper price.

No Stamp Duty

There is no stamp duty on CFDs as you do not actually Buy theunderlying share *. *Tax laws may change

Commission

Commission is charged on CFDs just like on an ordinary sharetrade. The commission is calculated on the total position value notthe margin paid.

Overnight Financing

Because CFDs are traded on margin, if you hold a position open

overnight it will be subject to a nance charge. Long CFD positionsare charged interest, Short CFD positions will be paid interest.The rate of interest charged is set at 3% ** above or below thecurrent LIBOR (London Inter Bank Offered Rate). The intereston each position is calculated daily by applying the applicableinterest rate to the daily closing value of the position. The dailyclosing value is the number of shares multiplied by the closingprice. Each day’s interest calculation will be different unless thereis no change in the share price.

Shares and Indices

CFDs allow you to take a view on shares and indices as well assome sector specic indices (such as Mining). See page 10 formore details.

Risk Management Facilities

We place strong emphasis on risk management techniques.Robust risk management to protect prot and limit downside riskis as important as placing the trade

Because of the higher risk nature of trading on margin, we canoffer comprehensive ‘Stop Loss Order’ and ‘Limit Order’ facilitiesso that investors can manage risk in fast moving markets. **Subject to change



CFDs explained

GuardianEducation

Guardian, via one to one meetings, talk you through your tradingstrategy, objectives and how to best manage your expectations.You’ll also benet from useful information online to help you makethe most of trading with us, including a range of helpful guides todevelop your trading skills.

Including:

Trading CFDs vs Convential Equities.3

Pyschology of Trading.3

Market Fundamentals.3

Technical Analysis.3

Fundamental Analysis.3

How to trade around your physical portfolio (if applicable).3

How to trade from Economic Figures (both UK / US).3

Advantages and Disadvantages of Trading CFDs.3

How to trade CFDs via a SIPP.3

Demo Accounts

This will allow you to practise placing trades on our CFD platform,practise your trading strategy, work your way around the systemand be comfortable on how to enter and exit trades.

Our demo platform has real time pricing and will allow you toundertake the following:

Place all variations of Orders.3

Place Stop and Limit Orders to take prot at a pre3

determined level and to minimise downside risk. Using our trading information consisting of Charting3

& Fundamental Analysis.

For more information, visit www.guardianstockbrokers.com

Trading Plan

Guardian will discuss your trading plan in person and focus onthe following:

How much capital you would like to commit?3

What are you looking to use the account for? Speculation,3

hedging and/or dividend trading. Are you focusing on a specic sector or commodity?3

Trading Plans can be tailored to your individual needs.3

This will be conducted in greater detail during the account openingprocess.



CFDs explained

Share CFDexample Short Trade

A Short trade is when you Sell a share CFD

Marks and Spencer is trading at 300–300.25p

You believe that Marks and Spencer’s share price is going to falland place a trade to sell 5000 shares as a CFD at 300p. The valueof the contract would be £15,000, but you would only be requiredto make an initial deposit of 10% (Initial Margin) of £1,500.

The commission on the trade is £75 (£15,000 x 0.5%).

10 days later Marks and Spencer is trading at 280–280.25p

You decide to close your position and take a prot by buying 5000Marks and Spencer at 280.25p. The commission on the trade is£70.06 (£14,012.50 x 0.5%).

Prot on trade is calculated as follows:

Opening Level 300p

Closing Level 280.25p

Difference 19.75p

Prot on trade £987.50 (19.75p x 5000)

Total commission (£145.06) 50 bps

Interest payments £7.70Overall Prot £850.14

Of course if the market had moved against you, you would havemade a loss.

In this example by being Short M&S, interest payments are cred-ited to your account. For more detailed CFD trading examples please visit our websitewww.guardianstockbrokers.com



CFDs explained

ExampleIndices Trade Long

ExampleIndices Trade Short

The FTSE 100 is currently trading at 5792 and the quote is 5791–5793 on the FTSE CFD. You believe that the FTSE is going to riseand Buy 1 Maxi Index CFD at a total value of £57,930. To openyour position you supply a deposit of £2,000 per Maxi Contract.Later that day FTSE has risen to 5991 and the daily FTSE spreadis now 5990–5992. You decide to close your position and take aprot by selling 1 Maxi Index CFD which equates to £59,900.

The prot on the trade is calculated as follows:

Opening Level £5,793.00

Closing Level £5,990.00

Difference £197.00

Prot on trade (£197 x 10) £1,970.00

Overall Prot

To calculate the overall prot you must take into account the com-mission and nancing charges on the deal.

Prot On trade £1,970.00

Commission (£50.00)

Overall Prot On the trade £1,920.00

Of course if the market had moved against you, you would havemade a loss.

The FTSE 100 is currently trading at 4400 and the quote is 4399–4401 on the FTSE CFD. You believe that the FTSE is going to falland sell 1 Maxi Index CFD at a total value of £43,990. To open yourposition you supply a deposit of £2,000 per Maxi Contract. Laterthat day FTSE has fallen to 4299, spread is now 4298–4300.You decide to close your position and take a prot by buying 1Maxi Index CFD which equates to £43,000.

The prot on the trade is calculated as follows:

Opening Level £4,399.00Closing Level £4,300.00

Difference £99.00

Prot on trade (£99 x 10) £990.00

Overall Prot

To calculate the overall prot you must take into account the com-

mission and nancing charges on the deal.Prot On trade £990.00

Commission (£50.00)

Overall Prot On the trade £940.00

Of course if the market had moved against you, you would havemade a loss.For more detailed CFD trading examples please visit our websitewww.guardianstockbrokers.com



CFDs explained

Sector Trading

We can offer advice with a number of trading strategies in thisarea:

Pairs Trading

If you believe that one company is undervalued compared toanother company in the same sector (e.g. Rio Tinto against Lon-min) you can use CFDs to go Long on the cheaper stock whilstgoing Short on the more expensive stock.

Short Term Trading

The ability to gear up your trading capital by trading on a margin,combined with no stamp duty make CFDs an ideal instrument forshort-term trading.

Hedging

Hedge physical portfolio for a fraction of the cost.

Guardian Stockbrokers provide the complete trading solution.Our system allows you to trade online or by telephone in virtuallyany nancial instrument including:

SharesYou can trade over 7000 individual shares on all major marketsincluding;

Indices

You can trade all major indices including FTSE 100, FTSE 350,Dow 30, Nasdaq, S&P 500, CAC 40, DAX and Eurostoxx.

FXYou can trade all major currency pairs as well as many minor cur-rency pairs.

EnergyYou can trade all major US and UK Oil and Gas contracts.

MetalsYou can trade spot and forward contracts in Gold and Silver.

CommoditiesYou can trade some of the key contracts in London, Chicago, NewYork, and Paris including Cocoa, Cotton, Wheat and Soyabeans.

TypesofTrading Markets

Aerospace & DefenceBank ConstructionEngineering & Machinery

InsuranceLeisure, Entertainment& HotelsMining

Oil & GasPharmaceuticals & BiotechReal EstateRetail

Telecommunication ServicesTobaccoTransportUtilities



CFDs explained

Here at Guardian we want our Brokers to build long termrelationships with their Clients. We will also provide aDirector of Guardian Stockbrokers as a senior point ofcontact to all clients in the event you wish to talk to them.

First and foremost we value your business.3

CFD Trading with quality advice specic to your trading3

requirements.

No conict of interest – we do not make a market or trade3

against your positions.State of the art trading platforms – Trade with a combination3

of clearing brokers.Strong emphasis on risk management.3

Cap your exposure with our Limited Risk Account.3

Active Management System.3 *Fast and Instant Execution – experience of trading 100s of3

Orders per day and auction trading.Real time margin / prot / loss.3

Trading on market spreads.3

* Please call to discuss – for active traders

Force open facility.3

Only trading when opportunities arise and not being afraid to3

be out of the market.

Sophisticated Trading Tools – Interactive Real Time Charting3

and Technical Analysis.Full audit trail of all working and lled Orders including a3

breakdown of pre and post trading analysis.DMA Trading with Level 2 Access.3

Work own bid and offers.3

Ability to trade within a SIPP Wrapper.3

No minimum deposit size.3

Accept deposits in GBP / EUR / USD.3

All Orders emailed / texted to you once placed or exited.3

WhyTrade withGuardian?



CFDs explained

It is Guardians’ policy that all CFD advisory clients, should be provided with the following two-way risk warning notice:

You should not deal in CFDs unless you understand their nature and the extent of your exposure to risk. You should also be satisedthat the product is suitable for you in the light of your circumstances and nancial position. Although CFDs can be utilised for themanagement of investment risk, it may not be suitable for some investors. In deciding whether to trade in CFDs, you should be awareof the following points:

(i) CFDs can only be settled in cash. Investing in a CFD carries the same risks as investing in a future or an option or other derivativeproduct. Transactions in CFDs may also have a contingent liability and you should be aware of the implications of this as set out

below.(ii) Contingent liability investment transactions, which are margined, require you to make a series of payments against the purchase

price, instead of paying the whole purchase price immediately. If you trade in contracts for differences, you may sustain a total lossof the margin you deposit with your rm to establish or maintain a position. If the market moves against you, you may be calledupon to pay substantial additional margin at short notice to maintain the position. If you fail to do so within the time required, yourposition may be liquidated at a loss and you will be responsible for the resulting decit. Even if a transaction is not margined, it maystill carry an obligation to make further payments, in certain circumstances, over and above any amount paid when you entered thecontract. Before you begin to trade, you should obtain details of all commissions and other charges for which you will be liable. Ifany charges are not expressed in money terms (but, for example, as a percentage of contract value), you should obtain a clear andwritten explanation, including appropriate examples, to establish what such charges are likely to mean in specic money terms. In

the case of futures, when commission is charged as a percentage, it will normally be as a percentage of the total contract value, andnot simply as a percentage of your initial payment.

Risk Policy



Contracts forDifference

Guardian Stockbrokers Limited registered in England and Wales. Company No. 6756375. Registered office: 43–45 Dorset Street, London W1U 7NA

Authorised and regulated by the Financial Services Authority (No. 492519).

Guardian Stockbrokers14 City Road, London, EC1Y 2AAT. 020 7638 6996 F. 020 7638 6997E. [email protected]. www.guardianstockbrokers.com

Trading Cfds

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