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Anybody trading this now.
Robert
Margin trading on individual
shares
Instrument CFD (Contract for
Difference)
Midas now offers investors the
possibility of trading individual shares on margin. This is effected with
the use of so-called CFDs - or Contract for Difference - a derivative
that mirrors the price development of an individual share.
Margin trading is possible on 350 UK shares
(FTSE350, currency GBP), around 700 US shares (S & P 500, Nasdaq 100
and others on request, currency USD) and a selection of major Continental
European shares (currency EUR). All profit/losses can be converted into
your base currency if required Margin
trading with Midas has great advantages over normal stock
dealing:
CFD trading explained
You trade on the basis of the quoted price,
that reflects accurately the price and spread quoted in the market. For
the duration of your trade, your account is debited by an interest
payment reflecting the interest-earning amount that you avoid placing in
a low-yielding share with the use of this technique. Any dividend payment
on the underlying share is credited to your account.
The net effect of these adjustments is to
reflect the performance of investing in the share in traditional manner,
where you would lose interest income, but receive dividend
payments.
The scenario described above is valid
if you are long - a buyer of
the share. If you are short, speculating in a falling share price, you
will not be debited interest, only dividend payments.
The interest rate applied to the purchase of
share on margin is the prevailing market rate plus around
3%.
Please notice that when trading on margin,
large profits are possible, but risks are substantial due to the gearing
factor. Please consider such risks carefully prior to entering into any
margined transactions.
Answers to some of the most frequently
asked questions.
1. What are the advantages of trading
CFDs?
The main advantage of trading CFDs is the
ability to gear your investment by up to 20 times. The use of CFDs also
provides an extraordinary flexibility in your trading.
CFDs are used to:
1. Achieve gearing. By using CFDs you can achieve a much higher
gearing in a number of international markets. This means that your profit
will be much larger if you correctly anticipate the movement in the stock
price. Your risk will, however, increase accordingly.
2. Speculate in price falls - selling short. For most investors,
speculating in price falls on individual shares is expensive and
complicated. Using CFDs, however, it is very simple. Just sell on the
quoted price and buy back the position once you consider the level
appropriate. This technique can be used in periods of general market
declines or when specific events are expected to affect an individual
stock price negatively.
3. Risk management. To protect your portfolio against short term
market declines, you may quickly and efficiently cover your exposure by
the sale of CFDs. The positions can then be repurchased, once the price
decline is expected to have bottomed out. The profit achieved on the CFDs
will then offset the loss suffered on your investment portfolio if your
hedge has been accurate.
4. Hedge trading. It is increasingly popular to trade two
different, but related stocks against each other if you perceive a
difference in valuation to be unjustified. For example, you may trade two
banks or two telephone companies against each other, if one is seen as
overvalued and the other undervalued. Through the use of CFDs you can
exploit the return to more equal valuations. The overall risk is
typically lower, as the stocks are both in the same sector. You can also
trade an individual share's performance against a related
index.
2. Which markets can I
trade?
Midas offers CFD trading in the UK on
the FTSE350 stocks, in the US on S & P 500 and Nasdaq 100 components
and a selection of Continental European stocks. More markets will be
available in the future.
3. What is the minimum account size for
CFDs?
The minimum account size for CFD
trading is USD10,000 that will enable you to trade up to USD50,000 worth
of stocks. If you use our guaranteed stop loss facility, you may trade up
to USD200,000 (examples exclude commissions).
4. What is the smallest and largest trade
size?
The smallest trade size is GBP20,000,
USD40,000 and EUR40,000, respectively. To support such positions,
GBP4,000, USD8,000 and EUR8,000, respectively, is required. If you use
our guaranteed stop loss facility you can control a position with just
5-10% of the underlying value. Minimum trade size for guaranteed stop
loss positions are GBP50,000, USD100,000 and EUR100,000. In principle,
only the liquidity of the individual stocks limits the maximum size of
your trades, but substantial exposures are possible in most stocks.
5. What is the cost of trading
CFDs?
The commission cost varies from market to
market, but is generally in the range of 0.5-1.0% depending on the size
of your trades. Furthermore, an interest payment is deducted if you buy
stocks on margin. This interest payment is calculated daily (but debited
monthly)and is based on market rates plus three percent. If you are
speculating in lower stock prices, selling short, there is no interest
rate charge.
If you wish to use our guaranteed stop loss facility (which gives you
opportunity for higher gearing as you are limited to a clearly defined
loss even under extreme market conditions such as a crash), an additional
commission of 0.25% for buying and selling, respectively, is charged.
Normally, this charge is paid upfront as 0.5% when entering the trade and
on the basis of the entry price of the stock.
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