CFD & FOREX TRADING RULES

Transcription

1 CFD & FOREX TRADING RULES WHS TRADING RULES Version: Sep WH SELFINVEST Est Luxembourg, France, Belgium, Poland, Germany, Netherlands Copyright : all rights attached to this guide are the sole property of WH SelfInvest S.A. Reproduction and/or transmission of this guide by whatever means is not allowed without the explicit permission of WH SelfInvest. Disclaimer: this guide is purely informational in nature and can in no way be construed as a suggestion or proposal to invest in the financial instruments mentioned. Persons who do decide to invest in these financial instruments acknowledge they do so solely based on their own decission and risks. Alle information contained in this guide comes from sources considered reliable. The accuracy of the information, however, is not guaranteed.

2 CFD & FOREX TRADING RULES Your contractual engagements require that you carefully read this document on the rules of trading and all information available on our website before placing your first order on the trading platform. WHS has the right to modify these rules without prior notice. Trading with leverage and/or short selling can cause more losses than your initial investment. The client is fully responsible for any negative balance on the account and needs to cover this unsecured debit within 5 working days. The last version of the trading rules is always available on the WHS website. Please contact WHS support desk if you have any questions or concerns regarding these trading rules. WH SELFINVEST Est Luxemburg, France, Belgium, Poland, Germany, Netherlands Copyright : all rights attached to this guide are the sole property of WH SelfInvest S.A. Reproduction and/or transmission of this guide by whatever means is not allowed without the explicit permission of WH SelfInvest. Disclaimer: this guide is purely informational in nature and can in no way be construed as a suggestion or proposal to invest in the financial instruments mentioned. Persons who do decide to invest in these financial instruments acknowledge they do so solely based on their own decission and risks. Alle information contained in this guide comes from sources considered reliable. The accuracy of the information, however, is not guaranteed.

3 Table of content Trading hours and expirations Point value, spreads, charts and Spot FX vs. CFDs on FX Adjustments, dividends and short selling Corporate action, telephone orders and GTC orders Spot oil CFDs Order execution First-in, First-out (FiFo) accounting rule Non FiFo accounts Slippage Margin Requirements and account status Risk awareness Complaint procedure

4 Trading hours and expirations TRADING HOURS Forex contracts: Forex contracts are tradable 24 hours a day continuous from Sunday evening till Friday evening*. During the week, the forex positions remain open until 17:00ET (ET Eastern Time) at which point they are automatically rolled (roll-over) to the next day. This operation is explained in the clients form understanding your account statement in the Clients section on our website. The transactions which are placed after 17:00ET will have the next date as the value date. The prices which are given for closing and re-opening the position are visible every day within the analytical account statements accessible through the trading platform. CFD contracts: With a few exceptions*, CFD s can be traded solely during the opening hours of the underlying markets. Forex CFD s and CFD s based on most traded indexes (DAX, CAC, AEX, Nikkei,...) are however quoted 24h/24 (5d/7) even when the underlying market is closed. We can deduct the theoretical value of certain indexes from the price of other indexes that are opened. Orders on those index CFD s that quote 24h/24 are therefore also filled 24h/24. This brings several advantages such as the possibility to protect your trade against an opening gap with an active stop during the night. Careful: Trading hours might be different on public holidays. Please visit our website for more information: hp EXPIRATION Some CFD contracts are based on futures that expire at a certain date. Contract specifications such as monthly or trimestrial expiration, etc. are available on the underlying market websites. On WHS Prostation, it is possible to find the expiration of the CFD by opening a new order ticket (see screenshot *). You cannot keep a position after its expiration date. If you forgot to close a position on a contract that has expired, the position will automatically be closed at the settlement price determined by the market. If you wish to remain in position on the underlying symbol, you will have to roll the position, i.e. close the existing position and reopen a position on the new contract. It is best to roll a position between 1 to 3 days before expiration because the liquidity on the underlying futures drops in the final days. ADVICE : You can check the expiration dates of the CFDs on our website: ets.php Example : On the Future Dax 30 CFD The March contract expires on 16/03/2012. To roll the position, before this date: Long Position Sell the expiring contract(march) and Buy the next expiration (June). Short Position Buy the expiring contract(march) and Sell the next expiration (June). * 1

5 Point value, spreads, charts and currency pairs POINT VALUE POSITION SIZE CFD contracts are based on very different financial instruments. Therefore, the point value of a CFD contract can vary from contract to contract*. SPREADS The CFD spread based on commodities can however vary according to the liquidity of the underlying markets. SPOT FOREX VS FOREX CFDs On the platform two types of currency pairs can be found. One type is defined by the appendix.fx (spot forex), the other have a.cfd extention (Forex CFDs). The specifications for each of them can be found in the table below: Spot Forex CFDs on Forex The Tick column corresponds with the minimum difference between two consecutive prices. A tick is expressed in a CFD point. The Tick Value gives the cash value of a tick in the currency of the instrument. From these two sets of information it is possible to determine the value of a point for a CFD contract such as seen below: CFD contract: Tick : WTI Crude Oil 0,01 point (1 point is in this case 100 ticks) Tick value : USD 1 One point will therefore be USD 100 (= 1/0,01). If 1 contract WTI Crude is bought at USD , this will in fact be a position worth USD 10,500 (=1 x 105 x 100) ADVICE : Check out the tick value in the instruments tables before trading a CFD you are not familiar with. CHARTS For CFD s, there is no last filled price such as on the stock exchange. Charts on the platform are therefore not based on the last fill but on the Bid price. Less experienced investors often mention that their Buy Stop has been wrongly filled because the chart didn t reach the Stop. However, this remark is incorrect. Per increments of 1.000, or Daily rollover at 17:00ET with a realisation of P/L for that day. The Rollover price will become the new entry price and the P/L is reset to zero. Any size avalaible with a minimum of ( i.e ) Position will not be rolled. Thus entry price will not change and P/L will always stay the delta between initial entry price and current Bid or Ask. Financial adjustement will be applied on a daily base if positions are held overnight. Careful: Do not use the PIP calculator to determine the size of your positions, the pip value, or the value of a pip spread. When the Ask (which is always above the Bid) reaches the Stop, the order is activated. The chart shows the Bid and it is possible that the Bid did not reach the Stop when the order was activated. 2

6 SELL BUY Adjustments, dividends and short selling FINANCIAL ADJUSTMENT When keeping a CFD position overnight might require a financial adjustment (credit or debit) to be made. The adjustment applies to the CFD positions on cash based indices, shares and cash metals. There is no financial adjustment on future based CFD s. If the value of the position is X (= number of CFD s x closing price), the adjustment is: Long position -X x (LIBOR + 2.5%) / 360 Examples: 07/08/2013 USD overnight Libor = 0.119% EUR overnight Libor = 0.045% Short position + X x (LIBOR) 2.5%) / 360 Position Price Adjustement MSFT $ $ AIRF AIRF MSFT $ $0.687 FINANCING AND ROLLOVER ON FOREX Finance adjustments are made to trades held overnight (i.e. after 17:00 ET time) on rolling markets. For a short position: F = S * V For a long position: F = S * V * -1 Where F = Finance charge/credit S = Swap Rate V = Number of CFDs Retail clients will receive the institutional swap ticks and will pay the institutional swap ticks Credited interest is capped at 0.5 pips SHORT SELLING Restrictions on short selling may be applied (insufficient liquidity, underlying market restrictions, etc.). The list of shares that are currently available for short selling can be found by clicking on the country on the following webpage: Information_Sheets.php?sheet=1 DIVIDENDS The long or short positions on a CFD whose underlying share pays a dividend are dealt with in the following manner: U.K. shares U.S. shares other + 90% x gross dividends - 100% x gross dividends + 85% x gross dividends - 100% x gross dividends Depending on the country - 100% x gross dividends Also on cash indices (.F40,.N25 etc.) can be influenced by dividend payments. Account that hold the index receive the dividend, while accounts who hold short positions pay the dividend. Bear in mind that the value of the cash index will adjusted accordingly to the dividend paid. Therefor the open P/L of LONG positions will be negatively influenced while the P/L of open short positions will benefit from the adjustement. 3

7 Corporate action, telephone orders and GTC RIGHT ISSUES SPLITS REVERSE SPLITS In the event of raising capital ( right issues ), the share price could drop mechanically following the dilution of shares. Speculating on this price drop to trade profitably by shorting the CFD will not be a viable strategy since all traders having an uncovered short position at this time of capital raising will be constrained to repurchase the new shares emitted in addition to its initial position. These additional shares, quoted at a more interesting price, will have to be repurchased at market price. A split is a division of the face value of a share to show a lower price per share. A reverse split is the opposite. A CFD position based on an underlying share which is subject to a split or a reverse split will be updated on the platform in the shortest possible time. It is however up to the customers to inquire whether or not splits or reverse splits may influence their portfolio, and to adjust volumes and/or the price of the active orders on those CFD s. INSTRUCTIONS FOR PLACING A TELEPHONE ORDER In order to place your trade please provide the following information: your account number + your address for identification instrument/contract the volume of your order the type of order market, limit, stop, OCO, Par./cont. the price at which you would like your order placed CET Call on this number : CET Call on this number : (english only) WEEKEND STOP AND LIMIT ORDERS Please bear in mind that Stop orders only guarantee an execution but not execution price. Keeping orders working over the weekend or during holidays can lead to executions at less favorable prices as a difference between the open price and the close price of the previous trading day (gap) could occur. Having working orders 24h/24h increases the risk for an execution in less favorable market conditions (during periods with altered spreads). Examples: EUR/USD.DE30 MSFT Close on Friday Working order Bid/Ask at market open Buy Buy 6955 Buy / / /.12 Execution Price

8 Spot oil CFDs DEFINITION Spot oil contracts, CFD Spot WTI Light Crude Oil (Spot WTI CFD) and Spot Brent Crude Oil (Spot Brent CFD), enable traders to easily take a long term position on oil. Their main advantages are: No expiration. Compared to WTI and Brent Futures CFD which expire each month, and therefore need to be renewed (roll-over), spot oil contracts have an unlimited time span. They make life easier because there is no need to remember to roll the position before expiration. They also save transaction costs associated to the roll-over. No financing fee. The only fees are the transactional costs at opening and closing of a position. Price based on the underlying futures. Prices of spot oil CFD can easily be followed because they correspond to prices of WTI and Brent futures as communicated by the media. EVOLUTION OF A POSITION HOW IT WORKS: The entry price is displayed on the chart and on the quote board. The underlying future for the CFD Spot WTI is the WTI Mini Crude Oil Future, which is quoted electronically on the CME. The Mini Crude Oil Future expires each month on the 4th opening day before the 25th of the expiry month at 2.30 pm ET(New York time). The price of the Spot WTI CFD is automatically adjusted to the new contract one day before expiration. On this evening, the CFD will be suspended from trading between 2.30 pm and 6 pm ET. The underlying future for the CFD Spot BRENT is the BRENT Crude Future, which is quoted electronically on the ICE. The Brent Crude Future expires each month on the first or second business day before the 15th day preceding the first day of the expiration month at 8.30 pm CET. The price of the Spot Brent CFD is automatically adjusted to the new contract one day before expiration of the Future. On this evening, the CFD will be suspended from trading between 8.30pm and 2 am CET. Because of this, the chart and the account will undergo a monthly adjustment after the expiration. These adjustments do not affect the account value. Chart adjustment : One day before expiration of the underlying future, the spot price is adjusted to the new expiration. This usually causes an upward shift (see highlighted circle on the chart). Cash adjustment : An upward shift generates a profit. The account is then debited to cancel this gain. A downward shift generates a loss. The account is then credited to cancel this loss. Cash adjustments are made during the trading suspension. WTI: Profit/Loss = (current price entry price) x #lots x $100 + cumulated cash adjustments So - To keep a position for several months, there has to be sufficient cash on the account to compensate the cash adjustments. - A long position and a current price superior to the entry price does not necessarily mean a winning position. It is necessary to take into account the impact of the cash adjustments. 5

9 Order execution ORDER EXECUTION Market Orders. Market orders are executed at the best available price. The price that appears in the client s ticket prior to submission is the last price only and does not constitute the actual execution price. Limit Orders. Limit orders are executed at the price designated by the client or if possible at a better price. Direct Deals. A Direct Deal order is a limit order, the limit is placed at the current ask price if you buy, or at the current bid price if you sell. It is a fast way to place an order and avoid slippage. If the market price has moved and does not allow a fill, you will automatically receive a new order ticket with the new market price as a limit. You can then click to confirm the trade or ignore the order ticket (it will disappear automatically after a few seconds) and the order will not be placed. Stop Orders. Stop orders activate a market order when the price level designated by the client (the trigger) has been hit. This market order is then filled at the next available price. Buy Stop orders are filled at the best Ask price. Sell Stop orders are filled at the best Bid price. The filled price can be slightly different than the issued stop signal. Price evolution isn t necessarily continuous and gaps might occur. Guaranteed Stop. This Stop order is only available for index CFD s and CFD s on major FX pairs and only through the Parent and Contingent order ticket. A guaranteed Stop is a stop order with a guaranteed fill price. This fill price corresponds with the issued stop signal. A fixed number of points are charged on the Parent order. The issued stop price has to be placed at a minimum distance from the current market price. Examples: Parameters for a guaranteed stop on the France 40 CFD are : 2 / 50. In case of a Sell Stop The market price is You want to take a long position protected by a guaranteed stop. Click Guaranteed and insert a price for the stop at least 50 points under the current price, e.g The fill price is guaranteed at 5070 The parent order will be filled with a fee of 2 points. In case of a Buy Stop The market price is You want to take a short position protected by a guaranteed stop. Click Guaranteed and insert a price for the stop at least 50 points above the current price, e.g The fill price is guaranteed at The parent order will be filled with a fee of 2 points. IMPORTANT (1) An order that is not rejected when you place it, is by definition accepted; even if you do not receive the confirmation immediately. (2) A pending order (a market order, a limit order whose limit has been reached, a stop order which has been triggered) will always be filled as described in this document even if you don t see the position immediately. Even when an order has been filled immediately, the confirmation may have been delayed. Not receiving the fill confirmation, or not seeing the position doesn t mean that the order hasn t been filled. Even if you do not receive the confirmation immediately you can place an order to close or to protect the position. The confirmation and the update on your account will always follow. In case of a doubt, always contact the helpdesk to confirm the status. 6

10 First-in, First-out (FiFo) ORDER EXECUTION BASED ON FIRST-IN, FIRST-OUT All CFD s are balanced using the First-in, First-out or FIFO principle. This rule implies that the first lot that enters your account will be the first one to be removed from your account. Often, less experienced investors make the mistake by thinking this would negatively impact their account balance. Illustrating this, we assume an older position is losing money but a second, more recent position that was opened later, is making money. Subsequently closing the older position first forces the trader to book a loss, while being able to close the second position first would mean the trader would book a gain and would have the possibility to wait for the first position to return into positive territory. The reality is that it does not matter which position is closed first to the overall result of the P/L. The next example will show why: FIFO Own choice Sequence Trade Position P/L (realized) Sequence Trade Position P/L (realized) Trade1 Long Trade2 Close (from Trade1) Trade3 Add Trade4 2 Stopped (+50 from Trade1,-20 from Trade3) Trade (Break Even from Trade3) Trade1 Long Trade2 Close Trade3 Add Trade4 2 Stopped (from both position in Trade2) Trade (Position from Trade1) End result: +80 End result: +80 7

11 Non FiFo accounts Non-FiFo WHS clients can choose to have their accounts set as non-fifo. Non-FiFo allows the trader to close positions in the same market in any order they wish. The trader can still close out the first position he/she opened, it simply gives you greater flexibility to close any position you wish. This setting allows the trader to use attached orders and to apply hedging. Attached Orders Attached orders allow the trader to attach stop and limit orders to specific open positions. The trader is therefore in control of exactly which position will be closed by which Stop/Limit order. Also, if the designated position is closed out, any attached order remaining will automatically be cancelled by the system. Attached orders are linked to a specific position and not to the aggregate position in the market. Stops and limits on the individual positions are not shown in the aggregate view as an aggregate value would not be a true representation of how the orders are going to behave. Hedging and margin Hedging allows the trader to be both long and short in the same market at the same time. One of the advantages is that it gives the trader the flexibility to allow different ideas and strategies to be employed without having to use different accounts. When two equal-sized opposing trades are placed, the net requirement margin is reduced. Full margin will be required on the longest leg of the position; no margin will be required on the shorter leg of the position. Trade example: Example.DE30 Example EURUSD FiFo margin User trades.de30 with a 2% margin Buys = EUR Margin = EUR * 2% = EUR Sells 5 lots => Margin = closes out opposing Long position Total margin = 0 User goes long in EURUSD with a notional value of with a 2% margin. The required margin is Then a sell is placed in EURUSD for the same value. Result is that the original Long position is closed out. With no open position anymore the total margin will be 0. Non-FiFo margin User trades.de30 with a 2% margin Buys = EUR Margin = EUR * 2% = EUR Sells 5 lots =>Margin = - ( EUR * 0%) = 0EUR Total margin = EUR User goes long in EURUSD with a notional value of with a 2% margin. The required margin is Then a sell is placed in EURUSD for the same value. Result is that both the Long and the Short position are open. The original Long position has a margin of and the Short position has a margin of 0 (0%), making the total margin requirement IMPORTANT (1) To use Non-FiFo, please send a instruction to info@whselfinvest.com (2) When on non-fifo, opposing trades placed in the same account will be hedging trades. To really close positions, the trader needs to either select a position and close that one(at market) or use an opposing trade and the function called Close By. This function will merge two opposing trades and match them against each other. 8

12 Slippage SLIPPAGE A stop order which is placed at the exchange may be executed at a worse price than placed, which means that there will be a difference between the execution price and the stop price. This is called slippage. A recurring case of slippage is, for example, when the US unemployment figures are published on every first Friday of the month. In anticipation of this news, traders will remove their orders from the order books, creating illiquidity just prior to the news. Both the absense of liquidity and the surprise effect contribute in creating large price movements. It is important to note that the price moves intermittently, i.e. there is not an execution on each price level. That is the reason why certain stop orders can be executed with a smaller or larger deviations. This movie shows an example of the orderbooks of different futures at the time of a news announcement: (please note that the price movement can be even more volatile than shown in this example) 9

13 Margin Requirements and account status MARGIN REQUIREMENTS Margin is the amount of capital required to cover the risk of loss on a position. Intraday margin. The intraday margin corresponds with the minimum equity** needed on your account to open a new position and to keep a position opened at all times. In case of insufficient margin, the order is rejected. Overnight margin. The overnight margin is required to keep positions overnight or longer. The overnight margin amounts to twice the intraday margin (exception: spot forex and CFD forex). KNOWING THE ACCOUNT VALUE The trading platform gives values in real-time and in your base currency of the following important variables: Avl. Equity: Purchasing power (Total Equity Margin Req) Margin Req: Total required margin for the intraday open position Floating P/L: Total profit or loss on the open positions Total Equity: Total account value (= Avl. Equity + Floating P/L + unrealized P/L) Margin Percentage See paragraph Risk awareness **Equity = cash + profits or losses on open positions Margin changes from an instrument to another. Here are some examples: Intraday margin Spot FX and CFD FX 2% 2% CFD on shares 10% 20% CFD Euro Bond Future 2% 2% CFD Index DAX, CAC40, 2% 2% CFD Brent Crude Oil Future 2% 4% CFD London Coffee Future 5% 10% Overnight margin Margins can be modified without a warning preceding this and will apply to all existing or new positions 10

14 Leverage and risk awareness LEVERAGE Examples: I have EUR 2,500 on my account and I buy 3 CAC40 at 5,000 points. The leverage effect is 6 (= 3 x 5,000 / 2,500). I have EUR 5,000 on my account and I buy 300 shares at EUR 50 and 2 CFD France40 at 5000 points. The leverage effect is 5 (= [(300 x 50) + (2 X 5000)] / 5.000). I have EUR on my account and I buy 8 CAC40 at points. The leverage effect is 0.8 (=8 x / ). RISK AWARENESS WHS uses the Margin Percentage MP in order to measure the risk level on an account. The margin percentage is the ratio between the total equity and the margin required. The formula is simple: ADVICE : This percentage figure is available in real-time on your platform. Monitor it regularly! Less than 1 which means I do not use any leverage. ADVICE : The leverage therefore results from your own choice. Always know the leverage which you will be using before placing an order. 11

15 Risk awareness Situation Rule Action taken if rules are not respected Opening a new position Keeping a position intraday MP needs to be >100% MP must stay >100% If MP < 100% the platform will automatically reject any new order. If MP drops below 100%, your account doesn t meet the intraday margin requirements anymore, and WHS can use its contractual right to cut positions in your account without prior notice. Keeping a position overnight Every morning, WHS verifies if the account value covers the necessary margin. Some instruments, like forex and the major indices have the same margin for intraday and overnight. Others like equities and most commodities require 200% margin for overnight. Please consult our market information sheet for more info on margins. In case of excess, WHS has the right to: 1) Save an overnight call. 2) Liquidate the excess positions 3) Inform the client per . After having received a 3rd margin call within a period of 180 days the client will seize to benefit from the intraday margin. The overnight margin will be required to open all positions for 90 days. This will act as a protection, forcing the client to trade with more precaution. In the case of a new margin call during the 90 days, this period will be prolonged by 90 days. If MP drops to 25% If MP drops to 25%, all positions are automatically closed at market. Please note : in some cases (e.g. opening gaps, insufficient liquidity, high volatility, big order size, quotes suspended, etc.), liquidation may result in an unsecured debit which is the responsibility of the account holder. This unsecured debit has to be covered within 5 working days. ADVICE: The client can ask WHS to have their margin raised continuously the double intraday rate if they want to this way avoid receiving overnight calls. In order to avoid or reduce the risk of going beyond margin requirements, WHS has the right to liquidate the positions entirely or partially 30 minutes before the closing of the market or after 21:30 CET if account is not in line with keeping a position overnight rules. 12

16 Complaint procedure SUPPORT REQUESTS COMPLAINTS In the unlikely event of having any reason to feel dissatisfied with any aspect of our service, in the first instance you should contact our HelpDesk on or as the vast majority of questions can be dealt with at this level. If our HelpDesk is unable to resolve the matter you may refer it as a complaint to our Complaint service. Please set out the complaint clearly in writing either by or postmail. The Complaint service will carry out an impartial review of the complaint with a view to understanding what did or did not happen and to assess whether we have acted fairly and have met our contractual and other obligations. A full written response will be provided within four weeks of receiving the complaint. Please write to: complaint@whselfinvest.com or WH SelfInvest Complaint Service 291 route d Arlon 1150 Luxembourg Luxembourg 13