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SINGLE STOCK FUTURE TRADING

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  1. SINGLE STOCK FUTURE TRADING Shaun van den Berg PSG Online: Head of Client Education _______________________________ James Boardman JSE Derivatives Wednesday,23 May 2012

  2. OVERVIEW • JSE • Central Orderbook • PSG Online • What are SSFs • Terminology • SSFs versus Equities. • Risk • Trading Strategy • Pricing • Account Registration • SSF Simulator

  3. JSE - A CENTRALISED MARKET

  4. JSE – EVOLVING MARKETS From this…

  5. JSE – EVOLVING MARKETS … where you could expect this…

  6. JSE – EVOLVING MARKETS … to this. Quiet, calm efficiency

  7. JSE - A LEVEL THE PLAYING FIELD

  8. JSE - SSF GUARANTEE HIERARCHY

  9. JSE - IT WAS EASY TO SAY NO… NO!

  10. JSE - CENTRAL ORDERBOOK • Introduced competition on rates • Now they all come to you, hoping for a yes… Please? Please? You Please? Please? Please?

  11. JSE - SPREADS

  12. JSE - SPREADS R1.5 R1.5 R1 R99 R100 R101

  13. JSE - SPREAD COST • Can’t compare absolute spread values between instruments • Need to compare in percentage of exposure • Value will be in basis points • 1 Basis point = 0.0001 • On average spreads on Top40 Futures are 25 Basis Points ) ( BID OFFER = Spread% ( ) BID OFFER 2

  14. JSE - CONTACT DETAILS • Parking tickets! • Magnus de Wet • James Boardman • Rudolf Oosthuizen • DerivativesTrading@JSE.co.za • +27 11 520 7051

  15. PSG - WHAT ARE SSFs • SSFs are contracts entered into between 2 parties • Right for the buyer to take delivery of that stock on the date of the contract’s expiry, a ‘deposit’, known as the initial margin is made and used as security • Close out or Roll positions • An SSF contract is made up of 100 shares geared at around 15%

  16. PSG - SSFs EXPLAINED • Standardised contract • SAFEX • Partially matched orders simply expire! • Expire March, June, September and December • Including all relevant dividends and interest • Go long or Go short • Marked to market daily (MTM)

  17. PSG - TERMINOLOGY • Underlying • Going Long • Going Short • Closing a position • Expiry date • Initial margin • Variation margin • Rolling a position

  18. PSG - BENEFITS • Highly capital efficient • Low brokerage • Very liquid • Earn interest • Benefit from Corporate Actions • Cheaply diversify risk • Hedge your portfolio

  19. PSG - SSFs OR EQUITIES Joe (Equity / Share Trader) John (SSFsTrader) John is confident that Sasol Ltd shares will increase in the oncoming months. Sasol’s share price is R365, therefore he buys a Long Sasol SSF contract (JUN12 SOLQ). The initial margin set by the broker is R4,950 which is paid by the buyer. After 3 months the price has increased by 10% and the investor closes out his position and sells out of the Sasol SSF contract he is holding. His profit is R3,650 His return on his investment is 58%. Joe is confident that Sasol Ltd shares will increase in the coming months. He has R36,500 which she can invest. Sasol’s share price is R365, therefore she buys 100 shares. 3 months later the price has increased by 10% so he sells his shares to make a R3,650 profit. His return on his investment is 10%

  20. PSG - UNDERSTANDING RISK • Jack is an SSFs Trader • Jack is confident that Sasol Ltd shares will increase in the coming months. • Sasol’s share price is R365, therefore he buys a Long Sasol SSF contract – JUN12 SOLQ at R4 950 initial margin which is paid by the buyer • The Brent Crude price decreases by $10 a barrel which negatively impacts on Sasol’s share price, which drops to R335 per share • The SSF contract is made up of 100 underlying shares. • The margin call for Investor B to continue trading is 100 x R30 (R365 – R335) = R 3000 variation margin which needs to be paid in to keep the investors position open. He has now laid out R 7,950 • After a month the share price continues to drop to R300. The investor chooses to close his position and must pay in a further R 3,500 variation margin. • His total outlay is R 10,950 but he receives his Initial margin back, so his total loss is R6000 (-121.2%)

  21. PSG - SSF PRICING • Interest payable is determined daily by the market maker in relation to the ruling SAFEX rates. • Interest will be paid on cash balances at a rate linked to the JSE Trustees rate.

  22. PSG - SSF COSTS • Brokerage on the Central Orderbook is charged at 0.4% (excl VAT) of the value of the transaction. • 14% VAT on opening leg and 14% VAT on closing leg • 0.912% total • A booking fee of R60

  23. PSG - TRADING STRATEGY • Identify the candidate • Wait for the breakout • Set a reasonable target price (TP) • Allow the share to retest • Know when your trade has failed • Exit at your price target (TP) • Be patient • Be disciplined

  24. PSG - IDENTIFY THE CANDIDATE • The more times a share price has touched these areas, the more valid these levels are & the more important they become. • The longer these support & resistance levels have been in play, the better the outcome when the share price finally breaks out.

  25. PSG - ENTRY AND EXIT POINTS • Once prices are set to close above a resistance level, a trader will establish a bullish position. • When prices are set to close below a support level, a trader will take on a bearish position. • The exit point itself should be set at a critical price level, e.g. Support & Resistance

  26. PSG - ASCENDING TRIANGLES TP

  27. PSG - MARKETWORX • Mentored learning • Full day workshop (09h00 – 16h00) • Monday, 25 June 2012 • Fundamental Analysis & Investing • Technical Analysis & Trading • Cost: R200

  28. PSG - SIMULATOR TRADING • Click here • Submit your details • Login • Select your SSFSM account (top right) • Reset simulator • Select “New Order”

  29. SSF ACCOUNT REGSITRATION • Click here

  30. SSF Margin Initial margin per contract Top 40 SharesALSI & ALMI Copper, Gold, Platinum & Silver WTI Crude Oil

  31. SSF Central Order Book ALSI – Most popular Top 40 Shares Liquidity, Cheap, Tight Spreads Long & Short

  32. SSF Order Book – ALSI Trade 2 point spread = R10 x 2 points = R20 Margin = R28 050 Exposure = R280 500 Cost R25 per contract R10 per point 100 points move = R1000 Buy (Long) @ 30 089 Moves 300 points up = 30 389 300 points move x R10 = R3 000

  33. SSF Order Book – ALMI Trade 40 point spread = R1 x 40 points = R40 5 Contracts x R2 805 = R14 025 Margin = R2805 Exposure = R28 050 Cost R55 per contract R1 per point 100 points move = R100 Buy (Long) @ 30 050 Moves 300 points up = 30 359 300 points move x R1 = R300 x 5 = R1500

  34. SSF Simulator (SSFSM) Step 1 Select SSFSM Step 3 Click Reset Simulator Step 2 Check R100 000

  35. New Order (ALSI)

  36. New Order (ALSI Buy) Step 1 Select Direction Step 4 Click Submit Order Step 2 Enter Contracts Step 3 Enter Price (R) Example 1: Buy (Long) 1 contract @ 30 089

  37. Trade History (ALSI Buy) Select Trade History Margin Movement

  38. Financial History (ALSI Buy) Select Financial History Margin & Brokerage R25 Margin = R28 050 Exposure = R280 500 Cost R25 per contract R10 per point 100 points move = R1000

  39. New Order (ALSI Sell) Sell (Long Close) Moves up to 30 389 = 300 points move x R10 = R3 000 Step 1 Select Direction Step 4 Click Submit Order Step 2 Enter Contracts Step 3 Enter Price

  40. Trades History (ALSI Sell) Profit or Loss Margin Returned

  41. Financial History (ALSI Sell) Select Financial History

  42. SSF Simulator - Portfolio Select Portfolio Example 2: Buy (Long) @ 30 089 Moves down to 29 921 = 169 points move x R10 = R1 690 loss (Margin Call) Example 3: Sell (Short) @ 30 089 Moves down to 29 789 = 300 points move x R10 = R3 000

  43. New Order (Remgro Buy) Step 1 Select Direction Step 4 Click Submit Order Step 2 Enter Contracts Step 3 Enter Price (R)

  44. Trade History (REM Buy) Select Trade History Margin Movement Margin = R2 122 5 Contracts 5 x R2 122 = R10 610 Exposure = 5 x 100 x R131.50 = R65 750

  45. Financial History (REM Buy) Select Financial History Margin & Brokerage R309.03 Brokerage = Exposure R65 750 x 0.47% (VAT incl) = R309.03

  46. SSF Simulator - Portfolio Select Portfolio Exposure 5 x 100 x R131.50 = R65 750

  47. New Order (Remgro Sell) Step 1 Select Direction Step 4 Click Submit Order Step 2 Enter Contracts Step 3 Enter Price (R)

  48. Trade History (REM Sell) Select Trade History Profit or Loss Margin Returned Sell (Close) REMJUN12 contract @ R142.00 Exposure = 5 x 100 x R142.00 = R71 000

  49. Financial History (REM Sell) Select Financial History Brokerage & Profit Brokerage = R71 000 x 0.47% (VAT incl.) = R333. 70 Profit = R71 000 – R65 750 = R5 250

  50. SUPPORT • General enquiries • 0860 PSG PSG (774 774) • info@psgonline.co.za • www.psgonline.co.za • Trading assistance • Lawrence Marshall • lawrence@psgonline.co.za • Educational enquiries • education@psgonline.co.za