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2% Rule with CFDs versus Spread TradingThe rule is very easy to understand. Whether you trade using CFDs or Spread Betting, the rule is the same. Never risk more than 2% of your portfolio on any one trade. It’s one rule that you can use whether you have a R1,000 account or a R10,000,000 account. You see, trading is a forever business. This means, as a trader you should risk as little of your portfolio as possible in order to stay in the game longer. We’ll now go straight into how you to enter your CFDs and Spread Betting trades using the 2% rule. How to enter your CFD trade using the 2% Rule Here are the specifics for the trade CFD of the underlying Company: TIM Ltd CFDs Portfolio value: R100,000 2% Max risk per CFD trade: R2,000 Entry price: R400.00 Stop loss price: R380.00 To calculate the no. of CFDs you’ll buy per trade, you’ll need the: ~ Max risk per trade ~ Entry Price and ~ Stop loss price Next, you’ll need to follow two steps: Step #1: Calculate the risk in trade The ‘risk in trade’ is the price difference between where you enter and where your stop loss is: Risk in trade = (Entry price – Stop loss price) = (R400 – R380) = R20 Step #2: Calculate the no. of CFDs to buy No. of CFDs to buy = (2% Risk ÷ Risk in trade) = (R2,000 ÷ R20) = 100 CFDs In your platform you’ll type in 100 TIM CFDs to buy, place your entry price at R400 and your stop loss price at R380 to risk only 2% of your portfolio. Note: 1 CFD = 1 Share exposure 100 CFDs = 100 Shares exposure How to enter your Spread Trade using the 2% Rule With spread trading you trade on a ‘value per 1 point’ basis. You’ll choose either: R0.01, R0.10, R1 or any other amount per 1 cent movement in the underlying market. If you choose R0.10 value per 1 cent movement, for every 10 cents the market moves against or for you, you’ll lose or gain 100 cents (10 cents value per point X 10 cents movement). Here are the specifics for the spread trade. Contract of the underlying Company: TIM Ltd Portfolio value: R100,000 2% Max risk per Spread trade: 200,000c (R2,000) Entry price: 40,000c (R400.00) Stop loss price: 38,000c (R380.00) To calculate the ‘Value Per Point’ to enter your long (buy) trade, you’ll need the: ~ Max risk per trade ~ Entry Price ~ Stop loss price Next, you’ll need to follow two steps: Step #1: Calculate the risk in trade Risk in trade = (Entry price – Stop loss price) = (40,000c – R38,000c) = 2,000c (R20.00) Step #2: Value per 1 cent movement Value per 1 cent movement = (2% Risk ÷ Risk in trade) = (200,000c ÷ 2,000c) = 100c (R1.00) This means, with a ‘Value per point of 100c’ every 1 cent the TIM Ltd share price moves, you’ll make or lose 100 cents. Every 2,000c the market moves, you’ll make or lose 200,000c or R2,000 of your portfolio (100c Value per 1 cent movement X 2,000c movement). Note: 1 Cent per 1 cent movement = 1 Share exposure 100 Cents per 1 cent movement = 100 Shares exposure
JSE:J200Education
by Timonrosso
EXPLAINED: How Gearing Works with CFDs and Spread TradingNot sure what happened but the image didn't show. Here it is again... This is the most important concept you’ll need to understand to accelerate your account. During your trading experience, with gearing, you’ll learn how to multiply your profits. But you can also multiply your losses, if you don’t know what you’re doing. So listen up. What Gearing is in a nutshell… Gearing also known as leverage or margin trading, is the function that allows you to pay a small amount of money, in order to gain control and be exposed to a larger sum of money. There is a very simple calculation you’ll use calculate the gearing for both CFDs and Spread Trading. Exposure Initial margin In order to understand this formula, let’s use three gearing examples with shares versus CFDs and Spread Trading. We’ll break it up into three steps for CFDs and Spread Trading: 1. Calculate the entry market exposure 2. Calculate the initial margin (Deposit) 3. Calculate the gearing We’ll also exclude costs to help simplify the gearing concept better. EXAMPLE 1: Buying AAS Ltd shares Portfolio value: R100,000 Company: AAS Ltd Share price: R109.00 No. shares to buy: 100 If you buy one share at R109 per share, you’ll be exposed to R109 worth of one share. If you buy 100 shares at R109 per share, you’ll be exposed to R10,900 worth of shares (100 shares X R109 per share). We know that to be exposed to the full R10,900 worth of shares, we needed to pay an initial margin (deposit) of R10,900. If we plug in values into the gearing formula, we get. Gearing = (Exposure ÷ Initial Margin) = (R10,900 ÷ R10,900) = 1:1 This means, there is NO gearing or a gearing of 1 times, with the share example as, what we paid is exactly as what we are exposed to. Easy enough? Let’s move onto CFDs. EXAMPLE 2: Buying AAS Ltd CFDs Portfolio value: R100,000 CFD of the underlying Company: AAS Ltd CFD Share price: R109.00 Margin % per CFD: 10% (NOTE: Find out on your trading platform or ask your broker for the margin % per CFD) No. CFDs to buy: 100 Step #1: Calculate the entry exposure of the CFD Entry exposure = (Share price X No. CFDs) = (R109.00 X 100 CFDs) = R10,900 NOTE: 1 CFD per trade, you’ll be exposed to the value of one share. 100 CFDs per trade, you’ll be exposed to the value of 100 shares. Step #2: Calculate the initial margin of the CFD trade Initial margin = (Exposure X Margin % per CFD) = (R10,900 X 0.10) = R1,090 This means to buy 100 CFDs, you’ll need to pay an initial margin (deposit) of R1,090. Step #3: Calculate the gearing of the CFD trade Gearing = (Exposure ÷ Initial margin) = (R10,900 ÷ R1,090) = 10 times With a gearing of 10 times, this means two things… #1: For every one CFD you buy for R10.90 per CFD, you’ll be exposed to 10 times more or the value of one AAS Ltd share. #2: For every one cent the share price rises or falls, you’ll gain or lose 10 cents. EXAMPLE 2: Buying AAS Ltd CFDs Portfolio value: R100,000 Underlying Company: AAS Ltd Share price: 10,900c Value per point: 100c (R1.00) Margin % per Spread Trading contract: 7.50% (NOTE: Find out on your trading platform or ask your broker for the margin % per share contract) Step #1: Calculate the entry exposure of the spread trade Entry exposure = (Share price X Value per point) = (10,900c X 100c) = 1,090,000 (R10,900) Note: 1c value per point per spread trade– you’ll be exposed to one AAS share 100c value per point per spread trade – you’ll be exposed to 100 AAS shares Step #2: Calculate the initial margin of the spread trade Initial margin = (Exposure X Initial margin) = (1,090,000c X 0.075) = 81,750c (R817.50) This means, you’ll need to pay an initial margin (deposit) of R817.50 to be exposed to R10,900 worth of AAS Ltd shares. Step #3: Calculate the gearing of the spread trade Gearing = (Exposure ÷ Initial margin) = (1,090,000 ÷ 81,750c) = 13.33 times This means, by depositing R817.50 you’ll be exposed to 13.33 times more or R10,900 (R817.50 X 13.33 times) worth of AAS Ltd shares. You now know how gearing works with CFDs and Spread Trading, in the next lesson we’ll cover how to never risk more than 2% of your portfolio for each CFD and Spread Trade you take. Did you enjoy this article? Trade well, live free. Timon Rossolimos Feel free to follow our socials below for more.
JSE:J200Education
by Timonrosso
EXPLAINED: CFDs versus Spread Trading 101What are CFDs and Spread Trading? Spread Trading (betting) and CFDs are financial instruments that allow us to do one thing. To place a bet on whether a market will go up or down in price – without owning the underlying asset. If we are correct, we stand a chance to make magnified profits and vice versa if wrong. Both CFDs and Spread Trading, allow us to buy or sell a huge variety of markets including: • Stocks • Currencies • Commodities • Crypto-currencies and • Indices. When you have chosen a market to trade, there are two types of CFD or Spread Trading positions you can take. You can buy (go long) a market at a lower price as you expect the price to go up where you’ll sell your position at a higher price for a profit. You can sell (go short) a market at a higher price as you expect the price to go down where you’ll buy your position at a lower price for a profit. EXPLAINED: CFDs for Dummies DEFINITION: A CFD is an unlisted over-the-counter financial derivative contract between two parties to exchange the price difference between the opening and closing price of the underlying asset. Let’s break that down into an easy-to-understand definition. EASIER DEFINITION: A CFD (Contract For Difference) is an: • Unlisted (You don’t trade through an exchange) • Over The Counter (Via a private dealer or market maker) • Financial derivative contract (Value from the underlying market) • Between two parties (The buyer and seller) to • Exchange the • Price difference (Of the opening and closing price) of the • Underlying asset (Instrument the CFD price is based on) EASIEST DEFINITION Essentially, you’ll enter into a CONTRACT at one price, close it at another price FOR a profit or a loss depending on the price DIFFERENCE (between your entry and exit). Moving onto Spread Trading. EXPLAINED: Spread Trading for Dummies DEFINITION: Spread Trading is a derivative method to place a trade with a chosen bet size per point on the movement of a market’s price. EASIER DEFINITION: Spread Trading is a: Derivative method (Exposed to an underlying asset) to Place a trade (Buy or sell) with a chosen Bet size per point on where you expect a Market price will Move (Up or down) In value EASIEST DEFINITION: Spread Betting allows you to place a BET size on where you expect a market to move in price. Each point the market moves against or for you, you’ll win or lose money based on their chosen TRADING bet size (a.k.a Risk per point or cent movement). The higher the bet size (value per point), the higher your risk and reward. The costs you WILL pay with Spread Trading and CFDs Both Spread Trading and CFDs are geared-based derivative financial instruments. As their values derive from an underlying asset, when you trade using Spread Trading or CFDs, you never actually own any of the assets. You’re just making a simple bet on whether you expect a market price to rise or fall in the future. If you decide to go with the broker or market maker who offers CFDs or Spread Trading, there are certain costs you’ll need to pay. Costs with Spread Trading With Spread Trading, you’ll only have one cost to pay – which are all included in – the spread. The spread is the price difference between the bid (buying price) and the offer (selling price). EXAMPLE: Let’s say you enter a trade and the bid and offer prices is 5,550c – 5,610c. The spread, in this case, is 60c (5,610c – 5,550c). This means your trade has to move 60c to cross the spread in order for you to be in the money-making territory. Also, if the trade goes against you, the spread will also add to your losses. Why the spread you ask? The spread is where the brokers (market makers’) make their money. Costs with CFDs Brokerage With CFDs, it can be different. Depending on who you choose to trade CFDs with, you may need to cover both the spread as well as the brokerage fees – when you trade. These brokerage fees can range from 0.2% – 0.60% for when you enter (leg in) and exit (leg out) a trade. NOTE: If the minimum brokerage per trade is R100, you’ll have to pay R100 to enter your trade. Daily Interest Finance Charge The other (negligible) cost, you’ll need to cover is the daily financing charges. If you buy (go long) a trade, you’ll have to pay this negligible charge (0.02% per day) to hold a trade overnight. However, if you sell (go short) a CFD trade, you’ll then receive this negligible amount (0.009%) to hold a short trade overnight. The costs you WON’T pay as a Spread Trader With spread trading (betting), you don’t own anything physical. When you take a spread bet, you’re simply making a financial bet on where you expect the price to move and nothing else. This means, there will be no costs to pay as you would with shares including: NO Daily Interest Finance charges NO Stamp Duty costs NO Capital Gains Tax NO Securities Transfer Tax NO Strate NO VAT NO Brokerage (all wrapped in the spread). The costs you WON’T pay as a CFD trader With CFDs, you’ll notice that there are similar costs with Spread Trading that you won’t have to pay including: NO Stamp Duty costs NO Securities Transfer Tax NO Settlement and clearing fees NO VAT NO Strate 24-Hour Dealings The great thing about Spread Betting or CFD trading is that, you can trade markets trade 24/5. I’m talking about currencies, commodities and indices. And with Crypto-currencies you can trade them 24 hours a day seven days a week. I have left out a very important difference between CFDs and Spread Trading… Gearing and how it works in real life…
JSE:J200Education
by Timonrosso
1
Q. How do you work out CFD Interest Swaps with an example?Q. How do you work out CFD Interest Swaps with an example? Answer: CFDs is an instrument where you pay a small amount of money to be exposed to the full value of the share. With CFDs, there are daily charges when you buy and daily income interest that you receive when you sell (go short). The charge is known as a ‘daily swap’ or ‘daily interest charge’. You can ask your broker what the annual interest swap rate is or you’ll most likely be able to find it on your platform… With my broker for example, the long swap (for when you buy) is -9.47% per year. And the short swap (for when you sell) is 2.71%. With your Shoprite trade, because you’re buying CFDs (which is a geared instrument), you’re essentially borrowing the money from the bank. This means, you have to pay interest on the borrowed funds (in order to be exposed to the full value). Those are the ‘swaps’ we’re talking about. Let’s say the Shoprite share is trading at R223.19 and the margin (initial deposit) to buy 1 CFD is 9.7% (R21.70). This means, when you buy 1 CFD for R21.70, you’ll be exposed to the full R223.19 worth of the share. If you buy 100 CFDs and pay R2,170 (100 CFDs X R21.70) you’ll be exposed to the full R22,319 worth of shares (100 shares X 223.19). And if you sold the 100 CFDs at R236.00, you would have been exposed to R23,600. On that R22,319 exposure, you’ll pay 9.47% (R2,113.60) interest (swap) per year. But luckily as traders, you don’t need to worry about paying the full amount, as we like to hold only for a short period of time. This means, each day you hold the CFD with exposure of R22,319 – you’ll only pay R5.49. (Exposure of your trade X 9.47%) ÷ 365 days. If the exposure never changed and you held onto your trade at the same share price you would pay R54.90 (after 10 days). However, we know that share prices move up and down each day. The higher the market goes up, the higher your exposure where you’ll pay slightly more. If the market price drops, you will pay slightly less. However, as traders we don’t tend to hold for more than a couple of days or weeks to curb the daily interest charges. If you have any other questions please ask in the comments :) Trade well, live free. Timon MATI Trader
JSE:J200Education
by Timonrosso
EURNZD Double bottom BreakoutThe idea here is about Forex: Euro/New Zealand Dollar (EURNZD). My view is bullish short term for the above mentioned pair due to the below observed technical factors. Points as per TA on a Weekly Chart: 1. Double Bottom pattern completed and neckline broken on weekly chart and the target goes the same distance as the height of the pattern, up from the neckline as below: 2. Broken out of downtrend long back with false breakout and breakdown on weekly chart as below: 3. Support Established on 200 EMA as below : 4. Possible Butterfly pattern CD leg under formation and min Fibonacci distance from XD is 1.272 as below which can is considered as future target price: 5. Trading above 20 & 200 EMA on Daily chart. 6. Kumo Twist & Breakout on a daily chart is Strong and on weekly kumo twist is neutral & Kumo breakout is currently consolidating. 7. RSI is at 73.14 on a daily and 66.31 on weekly chart at the time of publishing. 8. MACD way above signal line on weekly & daily chart. 9. Hull Moving Average & other Moving average is a strong Buy Signal on Daily, Weekly & monthly chart. 10. ADX is at 54.46 on daily chart (ADX Value above 50 is considered as very strong trend) & 13.19 on weekly chart (ADX value below 25 is considered as absent or weak trend). 11. Volume Spike in weekly chart signals strong Momentum. Projected targets provided in chart. Stop Loss: provided in Chart. Note: Please bear with me if there is anything which I might have missed. Since, I am publishing my first TA on Forex. Disclaimer: “The above is an Educational idea only and not any kind of financial or investment advice. So please do your own DD (Due Diligence) before any kind of investment”. Do you like my TA & ideas!! Want to keep yourself updated with current market action? Then don’t forget boost & to subscribe for more analysis. Do leave your valuable feedback & comments for any improvisations. Cheers.
Long
by Tron029
2
This is the chart that I use to trade the NASDAQ100 CFDs.I use hourly range charts to analyse the distribution of the market. Range charts make it easier to see the extremes in the chart. I also look at the time and the range of the hour. Statistically, 61.8% time market should range. Also, the market should stay in the same range 61.8% until the next day or session. Draw your volume profile. Mark the time of the day. Price moves away from the mean as well as moves toward the mean. That is the characteristic of a normal distribution.
NEducation
by rangika_ailapperuma
1
Should You Buy Gold? Yes, But Not Yet! Check It OutHello there! I want to be detailed on Gold in this analysis. I just decide to post an idea about it because I discovered something in the H4 timeframe that looks different from the other timeframes like the H1, 1D, 1W, and even the 1M, which can make some traders make the wrong decision going against the next market move. But first, I want to show you something in the monthly timeframe chart, then I will post the H4 chart to see what could happen when the Gold market opens. Look at the monthly analysis well so that you can understand what is going on now and what could happen next in the Gold market currently. Monthly Timeframe In the monthly chart above, you can see that the Gold market has rejected the strong support level by forming a small bullish pin bar at the key support area. Warning: you must be careful here if you are deciding to sell Gold. The pin bar is not a classic kind though, it can have a bullish effect on the Gold price movement in the coming week. As a result, be very careful. Why? It's because ofe the context where the pin bar candlestick has appeared matters! Daily Timeframe In the daily timeframe, an engulfing candle, but not so strong, has formed at the key support level area, signaling the reversal to the upside. So, the Monday candle could close with a "wick below". H4 Timeframe In the H4 timeframe, there is a tendency for the price to experience a short-term bearishness, to reverse to the support level, creating a "W" or double top pattern before completely taking a rally to the upside. This means we can make sell trade decisions here and exit close to the support, not exactly at the support level though. Why the bearishness? The inside bars have formed at the key resistance level, showing a loss of momentum in the bulls of Finally, the timeframe to pay much attention to is H4 for now because a bearish pin bar has formed in it. Take note of this and the stochastic seems to be going bearish, moving away from the overbought zone
TVC:GOLDLong
by OraclePips
1
A traders' week ahead playbook - Jackson Hole in the mix The event risk this week is really centred on Jay Powell’s speech at the Jackson Hole forum (Sat 00:00AEST), with other global data points unlikely to promote as much of a reaction – Powell should keep the option of a 75bp hike at the 21 Sept FOMC meeting firmly on the table, but offer the flexibility to go 50bp if we do see sufficient softening in the labour market in the US payrolls (NFP) report (2 Sept) and the pace of headline CPI inflation (13 Sept) falls again in the August read. The prospect of acknowledging future makers that could lead to the Fed cutting rates will not be present – the market would be highly surprised if they did hear this. As it stands, the market prices 61bp of hikes from the Fed in the Sept FOMC meeting, therefore leaning closer to a 50bp hike – it would not surprise to see this pricing between 60-65bp by the end of the coming week - Powell will want to give the Fed maximum flexibility and optionality until they know the NFP and CPI prints. For this week, it's likely less about the known event risks and keeping it thematic - reacting to flows from a targeted group of markets. 5 key markets that could influence cross-asset volatility this week: • The USD – notably USDCNH • EU Nat Gas & German Electricity prices • US 5 & 10-year real rates (for those on TradingView use the code - TVC:US05Y-FRED:T5YIE) • US volatility index – the VIX index • Fed balance sheet - A renewed belief that QT will ramp up Specifically, EU Nat Gas (NG) prices are front of mind – EUR and EU equity index traders should watch this closely – on Friday we saw the NG price trade to EUR262.78 – a new high in this bull trend and continues to home in on EUR300. We see German ‘baseload’ electricity prices moving exponentially and again the further this rises, the worse economics in Europe will be into the next few months. News that Gazprom is to close the Nord Stream pipeline between 31 Aug and 2 Sept for maintenance has traders worried that the shutdown may be extended and is a EUR negative. Germany has done a decent job of stockpiling gas for the winter, but the market is nervous. Fed balance sheet dynamics We also watch the Fed’s balance sheet dynamic – like many I have been focused on excess reserves passed to the Fed from US commercial banks – reserves have been on the rise, and by more than the Fed has been reducing its assets via QT - this better liquidity backdrop has been well correlated with risky assets. All the focus is on the Fed ready to ramp up the pace of reduction in the US Treasuries and potentially mortgages it holds on the asset side of the balance sheet – there is little doubt that these dynamics are boosting the USD. And what a week I was for the USD – EU NG, Fed liquidity dynamics aside, a 1.4% move higher in USDCNH above 6.8300, all contributing in boosting the USD – with the PBoC likely cutting the 1- & 5-year Prime rate (11:15 AEST) by 10bp a piece, we watch USDCNH – while a cut is priced, an upside break of 6.85 would impact broad markets and should be on the radar. High beta FX was carted out last week, with USDZAR and NZDUSD leading the charge. AUDUSD gets prime time on the radar, and while 1-week implied volatility is not overly punchy (at 11.75%) and pricing the downside on the week into 0.6870 - the technicals are looking weak, with Friday close just holding the 5 August swing. USDJPY has been a crowd favourite too, and it feels like this could squeeze into 138.00/20 before I have a greater conviction on fading the move. EURUSD sits on the 61.8% fibo of the July-Aug rally and parity is a whisker away – a fresh push higher in EU NG takes EURUSD through parity, and impacts the GER40, with funds further shying away from EU exposure. We do get some data points in Europe to focus on – such as S&P global manufacturing PMI (Tue 18:00 AEST) and consumer confidence (Wed 00:00 AEST), but the EUR should take its cue from energy. GBPUSD looks weak and the obvious level is the 14 July low of 1.1760 – rates markets price 56bp of further hikes from the BoE in the 15 Sept BoE meeting, and this week's data (again we see S&P global manufacturing PMI) may see traders’ massage that pricing. UK growth rates weigh on the GBP, and the market feels the UK may have crossed the Rubicon, to the point where high inflation becomes less supportive of a currency and impacts growth through the feedback loop to social channels. If the USD is to find further form – driven by the US exceptionalism story, rising 2yr Treasuries and reduced liquidity from the Fed’s balance sheet, then other risky assets should head lower this coming week. BBBY aside, the risk ‘canary in the coalmine’ plays are looking vulnerable – ARKK, crypto, SPAC and IPO index, to names a few. Implied vol is still sanguine, with our US volatility index making a move into 24.3% on Friday but not at levels indicative of greater S&P500 hedging demand. With options expiry now passed, we can watch (and/or trade) this index but the higher this goes the greater the opportunity to trade from the short side, as liquidity comes out of the market, the buyers stand aside, and cross-market correlations rise. The momentum is to the downside in US500 and NAS100, although I am still waiting on a bearish MA crossover (3EMA < 8 EMA). A break of 4203 would put 4065 on the table. With so many turning bearish, a renewed push into 4340 would be the pian trade. I favour the downside tactically, but as always holding an open mind.
PEPPERSTONE:US500Short
by Pepperstone