CONTRACTS FOR DIFFERENCE

Transcription

1 A GUIDE TO CONTRACTS FOR DIFFERENCE PUTTING YOU IN CONTROL OF YOUR TRADING

2 Risk Warning Notice City Index Limited, trading under the name of TD Waterhouse CFDs, is authorised and regulated by the Financial Services Authority (FSA). This notice is provided to you in compliance with FSA requirements because you are proposing to undertake dealings in Contracts for Differences. This notice cannot and does not disclose or explain all of the risks and other significant aspects involved in dealing in Contracts for Differences. Engaging in these type of transactions can carry a high risk. You should not engage in this form of trading unless you understand the nature of the transaction you are entering into and the true extent of your exposure to the risk of loss. Your profit or loss will vary according to the extent of the fluctuations in the price of the "underlying markets". For many members of the public, these transactions are not suitable; you should, therefore, consider carefully whether they are suitable for you in the light of your circumstances and financial resources. In considering whether to engage in this form of trading, you should be aware of the following: 1. The high degree of "gearing"or "leverage"is a particular feature of this type of transaction. This stems from the margining system applicable to such trades which generally involves a comparatively modest deposit or margin in terms of the overall contract value, so that a relatively small movement in the underlying market can have a disproportionately dramatic effect on your trade. If the underlying market movement is in your favour, you may achieve a good profit, but an equally small adverse market movement cannot only quickly result in the loss of your entire deposit, but may also expose you to a large additional loss unless you enter a Limited Liability contract (place a Guaranteed Stop Loss) with the firm. 2. Foreign markets will involve different risks from UK markets. In some cases risks will be greater. The potential for profit or loss from transactions on foreign markets or in foreign currency denominated markets will be affected by fluctuations in foreign exchange rates. 3. You may be called upon to deposit substantial additional margin, at short notice, to maintain your trade. If you do not provide such additional funds within the time required, your trade may be closed at a loss and you will be liable for any resulting deficit. 4. CFD transactions will not be undertaken on a recognised or designated investment exchange. During normal market hours, TD Waterhouse CFDs will execute CFD equity orders at the market price or better. Customer orders executed out of normal market hours will be executed at TD Waterhouse CFDs price. Customer orders placed in CFD Indices will always be executed at TD Waterhouse CFDs price. TD Waterhouse CFDs act as a "market maker"in these CFD Indices in and out of market hours, (see Terms of Service for market hours.) Closing trades will be traded at the price dictated by the spread quoted at the time of closing, irrespective of the spread at the time of the opening trade, which may be larger or smaller. No guarantee is given as to the spread at the time of closing. All CFD trades opened with TD Waterhouse CFDs must be closed with TD Waterhouse CFDs and cannot be closed with any other entity. 5. Where entering into such transactions, TD Waterhouse CFDs must do so under a two way customer agreement (i.e. TD Waterhouse CFDs Terms of Service) pursuant to the FSA Conduct of Business rules unless exempted from doing so. You should satisfy yourself that dealing is conducted throughout in strict conformity with that customer agreement and report to the FSA if you have reason to believe it is not. 6. Prior to placing trades,you should ensure that you understand all charges for which you will be liable. 7. CFDs are higher risk investments than ordinary share dealing, as gearing can lead to unlimited losses. However, to limit potential losses and bring peace of mind, customers trading through TD Waterhouse CFDs have access to both a simple Stop Loss facility and a Guaranteed Stop Loss facility. Both simple and Guaranteed Stop Loss facilities are only available at the absolute discretion of TD Waterhouse CFDs. A Stop Loss Order allows you to set a price which if breached will automatically trigger a sell order (for Long Positions) or buy order (for Short Positions) to close your current position. This facility is available at TD Waterhouse CFDs s discretion when placing the deal either through the online platform or over the telephone. With a simple Stop Loss if the share or index breaches your Stop Loss then your order will be executed when TD Waterhouse CFDs is reasonably able to do so. This may mean the order is executed at less than your Stop Loss price in the case of a Long Position or more than the Stop Loss price in the case of a i

3 Short Position. However you can use a Guaranteed Stop Loss on selected stocks and indices. As it suggests this is a Stop Loss Order that is guaranteed to be executed at the price you specify, even if the price of the underlying share or index makes a sudden movement and never actually trades at the price that you specified, your position will still be closed at your chosen price. This may not be the case with a simple Stop Loss. The Guaranteed Stop Loss facility is available on telephone dealing on many leading equities (usually the UK 100) and indices at the discretion of TD Waterhouse CFDs. You also pay a small premium for the Guaranteed Stop Loss facility when placing the deal. It is important to remember that TD Waterhouse CFDs allow you to trade index CFDs outside of normal market hours. For instance the UK 100 Index CFD can be traded between 7am and 9.15pm when the normal market hours are 8am until 4.30pm. The prices quoted for Index CFDs are house prices and are based on market movements. Outside of normal market hours the prices are based on the interpretation of how the market may move if it were open. This means simple Stop Losses and Guaranteed Stop Losses could be triggered outside of normal market hours based on movements in the house price for the index. Individual stock CFDs can only be traded whilst the underlying market is open. For specific information about the TD Waterhouse CFDs trading hours for each instrument, please refer to the Market Information Sheets, which form part of the Terms of Service. 8. Under certain trading conditions it may be difficult or impossible to liquidate a position. This may occur, for example at times of rapid price movement if the price rises or falls in one trading session to such an extent that trading is restricted or suspended. 9. TD Waterhouse CFDs is prohibited under FSA requirements from providing you with investment advice relating to investments or possible transactions in investments or from making investment recommendations of any kind. This prohibition is subject to an exception where advice given amounts to the giving of factual market information or information in relation to a transaction about which you have enquired, as to transaction procedures, potential risks involved and how those risks may be minimised. 10. TD Waterhouse CFDs is required to hold your money in segregated trust accounts in accordance with the regulations of the FSA, but this may not afford complete protection. 11. If you deposit collateral as security with TD Waterhouse CFDs, you should ascertain from TD Waterhouse CFDs how your collateral will be dealt with. 12. TD Waterhouse CFDs insolvency or default may lead to positions being liquidated or closed out without your consent. In certain circumstances, you may not get back the actual assets which you lodged as collateral and you may have to accept any available payment in cash. 13. If you have reason to believe that TD Waterhouse CFDs is not acting in accordance with representations that it has made to you, the terms of your customer agreement or the rules of the FSA, you should report it to the Financial Services Authority Consumer Helpline, 25 The North Colonnade, Canary Wharf, London E14 5HS, telephone number (or for the Consumer Helpline). We are covered by the Financial Services Compensation Scheme. In the unlikely event that we were to face liquidation and cannot meet our obligations, retail customers may be entitled to compensation from the scheme. Most types of investment business are covered for 100% of the first 30,000 and 90% of the next 20,000, so the maximum compensation is 48,000. Further information about compensation arrangements is available from the Financial Services Compensation Scheme. ii

4 Welcome to TD Waterhouse CFDs Through a partnership with City Index, TD Waterhouse is pleased to offer you a Contracts for Difference (CFD) trading service TD Waterhouse CFDs. About TD Waterhouse TD Waterhouse is one of the UK s largest execution-only brokers, providing trading and information services online and by phone to both active traders and longer term investors. Trading is available in UK and International Equities, Unit Trusts, Bonds and Gilts and Securitised Derivatives e.g. Covered Warrants. TD Waterhouse also offers CFDs and Financial Spread Betting through its relationship with City Index. TD Waterhouse is part of the Toronto-Dominion Bank Financial Group which ranks among the world's leading online finance firms with more than 4.5 million online customers. The Toronto-Dominion Bank trades on the Toronto and New York Stock exchanges under the symbol "TD". One of the UK s largest execution-only brokers 1

5 Our CFD Service Contents Designed to meet the needs of active traders, our Contracts for Difference (CFD) service offers exposure to market indices, individual equities, market sectors, currencies and commodities on both UK and International markets. They offer a number of advantages to active traders who can afford to place a portion of their assets into high risk investments in exchange for potentially high returns. It should also be noted however that losses may be potentially high. CFDs can be used to profit (or lose) from both rising and falling markets and offer exposure to a wider range of underlying investments than traditional share dealing. For UK taxpayers, CFDs also have the advantage that they are currently exempt from UK stamp duty. However, tax laws may change, and are subject to individual circumstances. Full details of our CFD service can be found in the following pages. If you have any questions, or would like any more information on other services from TD Waterhouse, please call us on We look forward to welcoming you to TD Waterhouse CFDs. Page 1. What are Contracts for Difference (CFDs) 3 2. Why Trade CFDs? 3 3. How CFDs Work 6 4. Market Variety 8 5. TD Waterhouse CFD Account 9 6. Introductory Low Stake Sizes A Bit More Detail Order Types Frequently Asked Questions Margin Payments Getting Started Managing Your Account 20 2 tdwaterhousecfds.ie

6 1. What are Contracts for Difference (CFDs)? An agreement between two parties to exchange, at the close of the contract, the difference between the opening price and the closing price of the contract. CFDs are a derivative product designed for active traders who want to leverage their investments. This leverage gives investors the potential to make greater profits (or losses) for the same initial investment. CFDs can be traded long' or short to speculate on either rising or falling markets. They are available on individual equities, market sectors, market indices, currencies and commodities on both UK and International markets. 2. Why Trade CFDs? CFDs offer a number of benefits to active traders who can afford to place a portion of their assets into high-risk investments in exchange for potentially high returns (or losses). Flexibility Contracts for Difference offer access to a wide range of financial instruments from a single account. With TD Waterhouse CFDs you can trade on individual shares, indices, commodities and currencies on Irish, UK and International markets. They are quick and easy to trade online and by phone, and can be used to back an investment to go either up or down. A Contract for Difference does not confer ownership of the underlying investment, just access to the price performance including any dividend or corporate action equivalent. This means that because CFD traders do not hold the physical asset, any benefits associated with direct share ownership, such as shareholder voting rights or an invitation to the company s AGM, are not available. Tax advantage 3 As CFD trades do not confer ownership rights they are currently not subject to UK stamp duty* and neither are CFD trades on certain Irish stocks. *Tax laws may change and depend on your individual circumstances. A full list of Irish stocks that are currently exempt from Irish stamp duty is available at tdwaterhousecfds.ie

7 Leverage Contracts for Difference are a leveraged investment, which means that the initial deposit required to place a trade is only a fraction of the value of the total underlying position. The initial deposit is, in effect, a down payment on any loss that may be incurred. This leverage gives CFD investors the potential to make greater profits for the same initial investment. Conversely leverage also increases the potential for losses, which can quickly exceed the initial deposit. When you hold an Open Position with a CFD, the minimum deposit level must be maintained at all times, and losses could give rise to Margin Calls. Instant execution TD Waterhouse CFDs offers instant execution in standard size or below as we make firm prices. Larger orders may be delayed as TD Waterhouse CFDs may hedge in the underlying instrument. Closing positions You can close your position at any time during TD Waterhouse CFDs trading hours. Stop Losses to limit your risks Where available you can use Stop Losses to automatically close out a position if it turns against you, and thus limit your downside. Hedge your bets You can use CFDs to reduce the risk of unexpected market movements. For example, you may have a long term share portfolio that you know you want to keep hold of, but you are worried that it may lose value in the short term because you think markets are heading down. You can take out a CFD that will help mitigate any short term loss, but at the same time may assist you to make a long term gain. Tax efficient trading If you have a holding of physical shares you can sell CFDs against this holding without crystallising a potentially taxable gain. This enables you to control the time at which you crystallise capital gains or losses to manage your tax liability. Tax laws may change and depend on individual circumstances. Pairs trading If you think that one stock is undervalued compared to another, you can use CFDs to go long (buy) one company and go short (sell) the other. For example, BP compared to Royal Dutch, even though they run similar businesses, you can use CFDs to go long (buy) one company and go short (sell) the other. This can be a useful trading strategy for the more active CFD investor. Services to meet your needs Please note that whereas there are many advantages of trading CFDs, there are also risks. Since CFDs is a leveraged product, you can lose more than your initial deposit. You should ensure that you are aware of all the risks as this product is not suitable for everyone

8 Comparison of Conventional Share Trading and CFD Trading for ABC Plc CFDs offer a very cost efficient alternative to conventional share trading, as illustrated below. Opening Trade Share Trade CFD Trade Price of ABC Plc?8.61?8.61 Number of shares 2,000 2,000 Value of shares?17,220.00?17, Stamp duty on purchase?172.20?0* Commission?15.00?51.66 (0.30%) Margin Requirement (10%) 0?1, Initial Investment?17,407.20?1, Closing Trade Share Trade CFD Trade Price of ABC Plc?8.92?8.92c Number of Shares 2,000 2,000 Value of Shares?17,840?17,840 Commission?15.00?53.52 (0.30%) Closing Value of shares?17,840.00?17, Opening Value of shares?17,220.00?17, Profit on trade?620.00? Stamp duty (?172.20)?0* Total Commission (?30.00) (?105.18) Financing**?0 (?9.90) Overall profit on trade?417.80? The return on initial investment from trading conventional shares is 2.4%. This can be compared to the return of 28.5% using Contracts for Difference with TD Waterhouse CFDs. If the underlying share price had fallen then this would have led to losses which were also amplified by using Contracts for Difference. *Assuming ABC Plc is exempt see stamp duty. Tax laws may change and are subject to individual circumstances. **For an explanation of financing please see section 3 How CFDs Work. Customers who hold Open Positions could be liable to pay greater levels of margins. See section 10 for an explanation of margin. Please note that while there are many advantages of CFD trading there are also risks. You should therefore ensure that you are aware of all the risks as this product is not suitable for everyone.

9 3. How CFDs Work Trading CFDs Trading CFDs is similar to trading equities. When opening a position you will be quoted a bid and an offer price. You will then be asked how many CFDs you would like to trade and whether you would like to trade long or short. On opening and closing a position you will be charged a commission. However unlike equities, CFDs do not currently attract stamp duty*, since you do not physically own the underlying equity, but rather a derivative that moves in line with the underlying investment. How CFDs do differ from equity trading is that when opening a position you are not required to pay for the full value of the trade, but rather you are required to deposit the Margin Requirement. The Margin Requirement is normally calculated as a percentage of the total value of the trade. Please refer to the Market Information Sheets for a full list of Margin Requirements. During the period when a CFD position is held open you are also required to maintain the Margin Requirement for the trade (see sections 9 and 10). Financing Financing is charged on all Open Positions held overnight and is levied on the total value of the position. For Long Positions your account will be debited the financing fee, where as with Short Positions you will receive the financing fee (subject to interest rate levels). This is only paid when a position is held overnight and paid to your account daily. * Tax laws may change and are subject to individual circumstances. For a position held on a Friday or prior to a TD Waterhouse CFDs non business day in the relevant market, financing will be applied on the number of days until the next TD Waterhouse CFDs business day (e.g. for a position held at the close of business on a Friday, financing will be applied for 3 days, assuming the next TD Waterhouse CFDs business day is a Monday). Dividend Adjustments (equity and equity related CFDs) A Dividend adjustment is credited to Long Positions and debited from Short Positions held at the close of business on the day before the ex-dividend date. Payment is credited or debited to your account on the ex-dividend date. Corporate Actions (equity and equity related CFDs) CFD positions will be adjusted in the event of a Corporate Action (for example a rights issue). The adjustment will be to replicate the Corporate Action on the underlying equity. If this is not possible then TD Waterhouse CFDs may, at its discretion, make an equivalent cash adjustment. This will apply to positions held at the close of business on the preceding business day to the ex-corporate Action date. The examples on page 7 take you through some CFD trades, highlighting commission, the amount of money required to place the trade (Margin Requirement), and the daily financing. However they do not show how to fund any running/open losses. It is important that you understand that in addition to your Margin Requirement, you will have to fund your account if your open trade is showing a loss. 6 tdwaterhousecfds.ie

10 Example A Long CFD Position on ABC Plc You decide to buy ABC Plc. A TD Waterhouse CFDs trader quotes you 860/861 and you buy a CFD on 2000 shares at?8.61. You pay no stamp duty.* * Assuming ABC Plc is exempt. Opening Trade Price of ABC Plc?8.61 Number of Shares 2,000 Value of Shares?17, Stamp duty?0.00 Commission?51.66 (0.30%) Margin Requirement (10%)?1, Initial Investment?1, ** Tax laws may change and are subject to individual circumstances Daily Financing On a nightly basis you pay financing for this position based on Euro LIBOR and the daily closing value of the shares. Your financing rate might be LIBOR %. Assume that this equates to a financing rate of (4.50%+2.50%) 7.00%, and the closing price for the day is 861c. You will pay [((2000 x 861) 1722) x 7.00% / 365 =?2.97] for holding the position overnight. This will be debited from your account on the next trading day. 3 days later ABC Plc is quoted 892/893 and you sell a CFD on 2000 shares at 892c. Closing Trade Price of ABC Plc?8.92 Number of Shares 2,000 Value of Shares?17, Commission?53.52 (0.30%) Closing Value of Shares?17, Opening Value of Shares?17, Profit on Trade? Total Commission (?105.18) Financing (3 days) (?8.91) The profit on initial investment in this example is 28.5% (?505.91/? ). Example A Short CFD Position on XYZ Plc You think XYZ Plc is overpriced so you decide to sell short a CFD on 2000 shares of XYZ Plc. The quote given by a TD Waterhouse CFDs trader is 825/826 and you sell a CFD on 2000 shares at 825c. Opening Trade Price of XYZ Plc?8.25 Number of Shares 2,000 Value of Shares?16, Stamp duty?0.00 Commission?49.50 (0.30%) Margin Requirement (10%)?1, Initial Investment?1, Daily Financing On a nightly basis you receive financing for this position based on Euro LIBOR and the daily closing value of the shares. Your financing rate might be LIBOR 3.00%. Assume that this equates to a financing rate of (4.50%-3.00%) 1.50% and the closing price for the day is 833c. You will receive [((2000 x 833) 1650) x 1.50% / 365 =?0.61] for holding the position overnight. This will be credited to your account on the next trading day. 3 days later XYZ Plc is quoted 855/857, you buy back the CFD on 2000 shares at 857c. Closing Trade Price of ABC Plc?8.57 Number of Shares 2,000 Value of Shares?17, Commission?51.42 (0.30%) Closing Value of Shares?17, Opening Value of Shares?16, Profit on Trade (?640.00) Total Commission (?100.92) Financing (3 days)?1.83 Overall Profit on Trade (?742.75) The loss on initial investment in this example is 43.7% (742.75/ ). LIBOR is the widely accepted reference rate used by the banking system. It is different for each currency and reflects bank deposit activity. 7

11 4. Market Variety TD Waterhouse CFDs offer exposure to a wide range of indices, equities, market sectors, currencies and commodities on Irish, UK and other International markets. Index CFDs: These can be useful if you do not have a view about specific shares but feel that the market as a whole will move in a certain direction. Indices we cover include: UK 100, Wall Street, US SP 500, US Tech 100, Hong Kong 40, Japan 225, Germany 30, France 40 amongst others. Equity CFDs: You can use individual equity CFDs to back an individual share, whether you think it is going up or down. TD Waterhouse CFDs gives you the flexibility to back major companies from Irish, UK, US, European and other international markets. UK Sector CFDs: These types of CFDs are advantageous if you wish to back a whole sector rather than staking everything on one share. They are an interesting way of backing areas of the stock market that you may have a view on. FX CFDs: Currency CFDs allow you to speculate on the world s major currencies. TD Waterhouse CFDs gives you the option to trade in any major nominated currency, so that you can benefit from the performance without the need for actual Foreign Exchange (FX) conversion. Commodities CFDs: Commodity CFDs allow you to access a vast array of markets you may not have had access to in the past. You can trade some soft commodities such as coffee, corn and wheat and energy commodities such as Gas Oil, Heating Oil and UK Crude Oil. Metals: You can speculate on the gold, silver and copper. Our competitive two way prices will allow you to take long or short CFD positions in these metals. Bonds: Bonds are an interesting way to access Government securities across several countries including UK, US and Japan. Interest rates: Our interest rate CFDs allow you to speculate on the rising or falling of interest rates in UK, US, Eurozone and Australia. Exposure to a wide range of indices, market sectors, currencies and commodities

12 5. TD Waterhouse CFD Account Our CFD Account provides you with access to our full range of CFDs and our Guaranteed Stop Loss service, which can assist you in the control of risk in your account by guaranteeing the execution price of a Stop Loss order. Guaranteed Stop Loss orders do not limit your profits, simply your losses, therefore providing you peace of mind that if a market moves quickly against you, you cannot lose more than you specified at the opening of the position. However, they are only offered on more liquid markets. The CFD Account is one where you will not normally be expected to provide proof of funds before opening, but you will be required to deposit funds into the account before trading. The amount that you deposit will determine the total size of any trade on the account and will not be considered as your ultimate financial liability. If your positions move against you, you may need to make a margin payment to maintain your position. This is because in addition to the Margin Requirement to create the position, you must also meet the full value of all running losses from your positions. Our CFD Account offers: Access to a full range of instruments including Irish, UK, US, European and Asian equities, indices, sectors, FX and commodities Margin Requirement from as little as 2% It is possible to lose more than your initial investment. Funds must be deposited in advance of a trade (Margin Requirement) and running losses must be met in accordance with the Terms of Service. Optional guaranteed Stop Losses are available on more liquid markets on payment of an additional premium. 9

13 6. Introductory Low Stake Sizes New to CFD trading? Learn to trade with TD Waterhouse CFDs For an introductory period, you are able to trade with reduced minimum stake sizes, giving you the option to limit your exposure to a level that you are comfortable with. Throughout this period you will have full access to our service, giving you time to build your confidence trading CFDs and using our online trading platform. With CFDs there is no minimum trade size, and our minimum commission is reduced during this time. This Introductory Low Stake Sizes trading period lasts for four weeks, and is available to you as soon as your account is funded. Even though you have been given the option of trading with low stake sizes for the full four weeks, there are no restrictions on larger trades meaning that you move up to larger trade sizes as soon as you are comfortable doing so. Once the introductory period of four weeks is over, the facility to trade with Low Stake Sizes will automatically be removed. Online support If you would like to learn more about CFD trading, the Learn to Trade section on our secure trading platform explains everything you need to know. Here we explain the mechanics of the product, review worked examples of CFD trades and explain how to use the tools available to help you manage your risks. We also give information on trading styles, and show you how to make the most of everything our trading platform has to offer. 7. A Bit More Detail This section details the TD Waterhouse CFDs pricing policy plus our commission and charges. This should be read in conjunction with our Market Information Sheets. Equities Pricing Policy We believe in providing our customers with complete transparency in the way we price our instruments. Our Equity CFD prices are sourced directly from the relevant exchange e.g. LSE. This means that in standard market size or less, our prices match the best bid/offer available on the exchange system. In the case of larger trades we will work your order to your price limit instruction, obtain the best possible price currently available in the market or provide a firm quote in the size. Our prices update approximately every second in cases where extremely rapid price movements occur, interim price changes may not be displayed. Quoted prices and underlying currency Prices are always quoted in the underlying market currency. For example, Irish equities in cents, UK equities in pence and US equities in cents. Trades are always executed in the base currency, e.g. Euro for Irish equities, Sterling for UK equities and Dollar for US equities. 10 tdwaterhousecfds.ie

14 Miscellaneous Charges If you opt for a Guaranteed Stop Loss an additional premium is calculated as a percentage of the trade price and will vary between 0.25% and 1% of the trade value depending on the share. Indices Pricing Policy We provide CFDs referenced to the major global equity indices. These are synthetically created markets that reflect the cash price by taking the equivalent futures market contract and deducting the 'fair value'. This is to reflect the cost of funding and dividends between the trade date and the futures expiry date. The exposure can be hedged in the relevant futures market. TD Waterhouse CFDs trade CFDs on the UK 100, Germany 30 and France 40 when the underlying markets are closed. The price quoted is determined by TD Waterhouse CFDs and is influenced by activity in world markets and business we are receiving. Currencies Pricing Policy There is no publicly accessible central exchange or market place for FX. We price our currency CFDs by taking a minimum of three electronic price feeds from the professional market. We then select an accurate mid price and wrap a spread around it. This gives our customers a bid/offer spread of approximately three to ten basis points depending on the currency pair. The prices we offer on currency CFDs are highly competitive and are consistently applied even in times of market volatility such as pre and post economic statistics releases. Our spreads may be wider in situations of extreme volatility. TD Waterhouse CFDs may adjust the CFD spread to take account of supply and demand. Stock Index CFDs have no fixed maturity date and positions can normally be closed at any time during our trading hours for that particular market. TD Waterhouse CFDs may adjust the CFD spread to take account of supply and demand. 11

15 8. Order Types This section details the various order types available to you and how they can assist your trading. Limit Orders Limit Orders are orders which are placed at a better price to you than the prevailing price. For example, an order to buy at a price below the current price or sell at a price above the current price. Unless attached to an Open Position, they will be active unless executed or removed. Stop Orders These are orders which are placed at a worse price than the prevailing price. For example, an order to buy at a higher price than the current price or sell at a lower price than the current price. Stop Orders are often used to limit possible losses (known as Stop Loss Orders which are attached to an Open Position, see below) but can be used to open new positions at market points which may see a reversal of recent trends. Unless attached to an Open Position, they will be active unless executed or removed. Linked Limit Order These are Limit Orders specifically attached to Open Positions. If the order is executed it will close all or part of the Open Position. If the Open Position is closed, the attached Limit Order is automatically cancelled. One Cancels the Other OCO orders (One Cancels the Other) allow you to link a Stop Loss Order and a Limit Order to an Open Position. This is generally used to control possible losses with the Stop Loss Order and take possible profits with the Limit Order. If one of the orders is executed, the Open Position is closed and the remaining order is automatically cancelled. OCO orders can be used to link two opening orders. Guaranteed Stop Loss Orders These are Stop Loss Orders where the agreed level will be the price at which the order is executed regardless of any slippage in the market or TD Waterhouse CFDs trading hours (please see important information regarding orders on page 13). An additional spread or charge (Limited Risk Premium) is charged (on opening the trade) in connection with a Guaranteed Stop Loss Order

16 Important information regarding orders Orders are monitored and executed on the basis of the TD Waterhouse CFDs quote (known as our quote ), e.g. a Stop Loss sell order would be triggered for execution when our bid price meets the trigger price. We will then execute at the next price available in the underlying instrument. For the above reason, the execution price of an order may be different to the specified trigger level. This is known as slippage in the professional markets and is a risk which falls on the customer. Generally, this does not occur or the price difference is small, however there are circumstances when the execution price may be quite different to the specified level as follows; (i) If the underlying instrument is experiencing a period of very poor liquidity or high volatility. This can occur particularly around the release of key market statistics or company announcements. (ii) Orders are only monitored and executed during TD Waterhouse CFDs market trading hours (not necessarily underlying market trading hours). In the case of markets which continue to operate outside of TD Waterhouse CFDs hours we will execute any triggered orders at the first available price in our opening hours which may be substantially different to the order level. However, if the market has moved beyond the trigger level and returned by the time that TD Waterhouse CFDs reopens, the order will not be executed. Orders that are left on the basis of Our Quote' on markets which TD Waterhouse CFDs quote as Grey Markets (i.e. those we quote outside of the hours of the underlying market) will be executed if the out of hours price reaches your order trigger level. The TD Waterhouse CFDs price for such Grey Markets is determined by TD Waterhouse CFDs in the light of prevailing, related markets (e.g. the US markets may determine the Grey Market UK 100 price). Orders which are left to open a position are subject to normal credit procedures. If an order to open were to result in additional margin being required the trade may not be opened at the absolute discretion of TD Waterhouse CFDs. Equally Stop Loss Orders may not be moved, at the absolute discretion of TD Waterhouse CFDs, if it were to result in a Margin Call. Trade online and by phone 13

17 9. Frequently Asked Questions What is a Linked Limit Order? A Linked Limit is a Limit Order that is linked to an Open Position. If that Open Position becomes closed for any reason then the Linked Limit Order will cease to exist. How do I place a Guaranteed Stop Loss Order? Guaranteed Stop Losses can be placed online or over the telephone. They can be placed at the time of placing the trade or afterwards. But orders cannot be placed, amended or cancelled out of market hours. The minimum level you can place the order and the extra cost is shown in the 'market info' tab, which is accessed for each individual market via the icon in the trading platform. If you cancel a Guaranteed Stop and then place another at a later time, you will be charged again. Example You place a trade to sell 10 Wall Street CFDs at and you enter a Linked Stop Loss at 10700, and a Linked Limit at If the position is closed before either of your orders are triggered, then both the Linked Stop Loss and Linked Limit will automatically be closed. If the Linked Stop Loss is triggered, the position will be closed and the Linked Stop Loss will automatically be closed. Similarly if the Linked Limit is triggered then the position will be closed and the Linked Stop Loss subsequently cancelled. What is a Linked Stop Loss Order? A Linked Stop Loss is a stop order that is put in place to limit the risk of a market moving against a current Open Position. The Linked Stop Loss is linked to an individual Open Position so that if that Open Position is closed, either by an opposing trade or order activation, then that order ceases to exist. Example You place a trade to Buy 10 UK 100 CFDs at 5350 and you place a Linked Stop Loss against that position at If that Open Position is closed by an opposing trade, e.g. a sell of 10 UK 100 CFDs at 5320, then the stop loss will automatically be cancelled. How do I calculate Margin Requirements? Margin Requirements are usually calculated as either a percentage of the position or a fixed factor multiplied by the number of CFDs you may have bought/sold. Example UK 100 CFD Margin Requirements = 5% of total position value (Number of CFDs x Current Price). Please make sure you are aware of the Margin Requirements applicable before you open each trade, these can be found in the Market Information Sheets or by calling the Customer Services Team on If the market sell price falls to 5300 and the Stop Loss order is executed, then your position will be closed. 14 tdwaterhousecfds.ie

18 Why do I pay a daily Financing Fee? When you open a CFD position you in effect are borrowing the total value of the trade minus the Margin Requirement that you are required to deposit in the account prior to the trade being accepted. For example, if you open a long position for?10,000 and you are required to deposit a Margin Requirement of?1,000. The financing charge you pay is to cover the cost of borrowing the difference, i.e.?9,000 (?10,000?1,000). Do I get charged commission for buys and sells? Yes. The opening and closing trade is effectively two separate trades and therefore you are charged commission for each trade. What does trading as principal mean? In conventional share trading customers will deal through a broker who places their trade with a range of market makers. The stockbroker is acting as an agent, searching out the best price for their customer. This is not the case with CFD trading. In this instance you are dealing with the provider ourselves and are contracting directly with us. What is Margin Requirement? Margin Requirement is the deposit requirement in respect of each Open Position on your account. When you place a trade you must have enough funds to cover the Margin Requirements applicable to that trade. You must maintain the Margin Requirement deposit level above any profits/losses on your account, these are sometimes referred to as variation margin. Will my profitable positions offset losses on my negative? Yes, open profits or losses are both taken into account when calculating margins. How do I calculate if I am on a Margin Call? Your margin is determined by the Total Position on your account. If this figure is negative, the funds required to bring it back to a positive figure is your Margin Call. This is calculated by using the following formula. Account Margin + Open Open = Total Balance Requirements Profits Losses Position If you are in any doubt, call our Customer Services Team on How are Margin Calls made? If your Margin Call exceeds?500 we will send you a letter to advise of the position. If the Margin Call exceeds?1,000 we will then attempt to contact you to request additional funds. The Margin Call could be made by , telephone or any other contact you have specified and a letter will be sent at 3.30pm on each day you are on Margin Call. When you discuss the Margin Call or any Open Positions with us, we will value your positions at the current price. If positions have moved in your favour, we will only require the margin which is then due, this can change with each price movement. 15

19 Who is responsible for monitoring my margin? It is your responsibility to monitor your positions and to ensure you have sufficient funds in your account to cover them, however we will attempt to assist in making you aware if funds are required. We are not obliged to make a Margin Call but we will make attempts to contact you. If you are in any doubt as to the position of your account or if additional funds are required, please contact our Customer Services Team on What are the rules for payment of margin? Margin calls are due immediately, however customers are normally given 3 working days to pay Margin Calls of under?10,000 following a position move against you. This timescale is based upon the time your positions move onto Margin Call regardless of contact with us. Margin calls of over?10,000 are required in cleared funds on the same business day. Might I have to make more than one margin payment in a day? Yes. In highly volatile markets this might be necessary. What happens if I can t pay my Margin Call? Always contact our Customer Services Team and ask to speak to a member of the Margin Department on if you believe you will have difficulty meeting your Margin Call. If you are unable to provide sufficient funds to meet your Margin Call then you may have to close some or all of your positions in order to bring you off margin. It may also be possible to reduce the Margin Call by placing Stop Losses. In certain circumstances we may have to compulsorily close all or part of your Open Positions, please therefore ensure you maintain contact with us. How is the Margin Call different from the Margin Letter? A Margin Letter is generated automatically each day. It is not always possible to contact all customers by phone, which is why we send letters. In fast moving markets the amount of variation margin required can change rapidly. Which should I pay, the Margin Call or the Margin Letter? If you receive both a Margin Call and a Margin Letter, please pay the amount specified during the call. You will receive a Margin Letter for each day you have positions on margin. What if I don t receive the Margin Call? We are not obliged to make a Margin Call and do so on a best efforts basis. It is your responsibility to monitor your own positions and ensure that you have sufficient available funds to meet your margin requirements. Do I receive dividends the same way as shares? CFDs are subject to a dividend adjustment intended to replicate the net dividend payment applicable to the ordinary share. A dividend adjustment is credited to long positions and debited from short positions held at the close of business on the day before the ex-dividend date. Payment is credited or debited to your account on the ex-dividend date

20 Can I amend Stop Loss orders when the market is closed? No. You are unable to amend existing orders out of market hours. This is because your current orders may be used to establish your margin requirements and as such we cannot allow them to be amended when markets are closed. How do I find out what the Margin Requirement is on an individual stock? Full details of Margin Requirement and charges can be found in the Market Information Sheets. If you are unsure of Margin Requirement for a particular market/stock you should always call the Customer Services Team before placing a trade to ensure you have enough funds to trade. Are orders active when markets are closed? Orders are only monitored and executed during TD Waterhouse CFDs trading hours (not necessarily underlying market trading hours). In the case where a market continues to trade outside of TD Waterhouse CFDs hours, we will execute any triggered orders at the first available price in our opening hours which may be different to the order level. However if the market has moved beyond the trigger level and returned by the time that TD Waterhouse CFDs re-opens, the order will not be executed. How do I change my password? If you have forgotten your password or wish to change it, please call the Customer Services Team on How do I make payments and withdrawals? You can make Debit Card payments by accessing your account online. At present you are unable to make withdrawals online. Please call our Customer Services Team on to request a withdrawal. Please note that TD Waterhouse CFDs cannot take payments from or make refunds to Visa or Mastercards or to third parties even with the customers' written permission. 17

21 10. Margin Customers who hold open CFD positions could become liable to pay additional margin. Margin is calculated using the formulae detailed in Appendix A Margining Terms of Service. Important points to note with regard to Margin Calls Please be aware that each individual position that you hold will require Margin Requirement. CFD customers are required to maintain the total Margin Requirement over and above any marked to market losses. Please note that it is the responsibility of you the customer, and not TD Waterhouse CFDs, to monitor your positions and make margin payments to TD Waterhouse CFDs immediately upon margin becoming due. Margin Calls may be made at any time in accordance with our Terms of Service. It is therefore imperative that you familiarise yourself with our Margining Terms of Service Appendix A and pay particular attention to section 4 in its entirety. Margin payments in excess of?10,000 will be required by electronic methods for same day transfer. Please refer to our Margining Terms of Service in Appendix A. Please be aware that if margin payments are not received when due, TD Waterhouse CFDs may without notice and in its absolute discretion close any, or all, in whole, or in part, of your Open Positions. If you are going on holiday or will be away from your normal contact details whilst running Open Positions, please notify us. It is important that we are able to contact you in the event of any Margin Calls. Failure to pay Margin Calls may result in positions being closed. Please note that TD Waterhouse CFDs normally make Margin Calls upon customers by telephone. It is the policy of TD Waterhouse CFDs not to disclose our company name or the nature of the call (except that it is a personal call) when attempting to contact customers by telephone, however we reserve the right to leave a detailed message, including the company name, should we wish to do so. In view of the above, we politely suggest that an account holder should lodge with us at least 25% more than the Margin Requirement if they choose not to restrict their losses to the amount of their deposit by use of Stop Losses. 18 tdwaterhousecfds.ie

22 11. Payments Payments can be made to TD Waterhouse CFDs in the following ways: Debit cards You can make payments by Switch/Maestro, Laser and Delta by logging into the Account tab on your trading platform or by telephone. Telegraphic transfer Bank: Barclays Bank plc (details are available on request). Please make sure your name and account details appear on all transactions. Cheque Must be made payable to TD Waterhouse CFDs Please ensure you write your TD Waterhouse CFDs Account number on the reverse of the cheque Cheques will be credited to your account once they have cleared and can be used to cover Margin Calls below?10,000. Credit cards TD Waterhouse CFDs cannot take payments from or make refunds to Visa or Mastercards or to third parties even with the customers written permission Getting Started How to open your account In order to apply for a TD Waterhouse CFDs or TD Waterhouse Financial Spread Betting Account, please follow these instructions. 1. Complete the online application form. You can also download and complete the TD Waterhouse CFDs / TD Waterhouse Financial Spread Betting Application Form (for joint applications, please also complete the Joint Application Form). Both of these forms can be found on the tdwaterhousecfds.ie website. 2. For all new clients we are obliged by law to undertake identity checks. In this regard, you should forward us a copy of one document from List A and one document from List B. List A Identification Documents Valid machine readable passport (including any signature and/or visa pages) Valid machine readable National Identity card (including signature and photograph) Valid UK Photocard driving license List B Proof of Residential Address Electricity bill Bank statement Gas bill Residential landline telephone bill Credit card statement Mortgage statement Council tax bill

23 All proof of address documentation must be dated within the last 3 months. We cannot process your application until we are in receipt of these documents. For joint applications, identity documents are required in respect of both applicants. 3. Please post both the relevant documents to: TD Waterhouse CFDs & TD Waterhouse Financial Spread Betting Dept. AA1578 PO Box 4214 Dublin 2 If you meet all the account requirements, your account will be opened and we will confirm your account number by telephoning you within 24 hours of your successful application. We will provide you with your account details and the information you require to enable you to start CFD Trading and/or Financial Spread Betting. If you have any queries or wish to discuss this further our Customer Services Team will be happy to assist you call To ensure your account is secure please always keep your account number and passwords confidential. 13. Managing Your Account Contract Notes and Statements Once you have started using your account and are trading CFDs you will receive Contract Notes and Statements. Always check these carefully and if there are any discrepancies, advise us immediately. Please see our Terms of Service for guidance. Changes to your personal information If any of your personal details change please notify our Customer Services Team immediately who will update your account records. Whilst you are away keeping us informed It is important that whilst you are running Open Positions you let us know if you are going on holiday or will be away from the normal contact details we have for you. We may need to contact you in the event of any Margin Calls. Failure to pay Margin Calls may result in positions being closed out