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Contracts

for
Difference

Page 2

CFDs explained

What
are
CFDs?

Benefits
of
CFDs

If you are interested in trading CFDs (Contracts for Difference)


or you simply want to know what they are and how they work,
youre in safe hands. Guardians CFD Team are knowledgeable
and experienced at trading all types of CFDs.

33 Profit from rising or falling markets.

A CFD is simply an agreement to exchange the difference in value


of a particular share (or other financial instrument) between the
time at which the contract is opened and the time at which it
is closed.

33 Trade Global Equities, Indices, FX and Commodities on a


single account with multiple currencies.

In the case of share CFDs unlike a traditional share when you


open a position you are not required to pay for the full value of
the trade but rather you are required to deposit collateral. This
is known as the Initial Margin, which can be as low as 5% of the
purchase price. In recent years there has been a dramatic increase
in the use of CFDs, they have in a short space of time become the
instrument of choice for short term stock market investors. If you
are not interested in high risk investments then it is probably safe
to say that CFDs are not suitable for you and we would strongly
advise that you do not attempt to trade these products.

33 No fixed expiry date.

33 No stamp duty is payable (saving 0.5% compared to


traditional shares).
33 Trade on margin allowing you to leverage your capital.

33 Limit and manage risk using Stop Loss and Limit Order
facilities.
33 Low commissions.

Page 3

CFDs explained

Key Features
of
CFDs
Traded on Margin

Commission

Rather than pay the full value of a transaction you only need to
pay a percentage when opening the position. This is referred to
as Initial Margin. The key point is that the margin allows leverage,
so that you can access a larger amount of shares than you would
be able to, if buying or selling the shares themselves. The margin
on all open positions must be maintained at the required level
in order to keep the position open. If a position moves against
you and reduces your cash balance so that you are below the
required margin level on a particular trade, you will be subject
to a Margin Call and will have to pay additional money into your
account to keep the position open or you may be forced to close
your position.

Commission is charged on CFDs just like on an ordinary share


trade. The commission is calculated on the total position value not
the margin paid.

Trade in Rising or Falling Markets


CFDs allow you to trade Long or Short. A Long trade is where
you Buy an asset with the expectation that it will rise, just as you
would when buying a normal share. A Short trade is where you
Sell an asset that you do not own in the expectation that the
price will fall and you can Buy the asset back at a cheaper price.

Overnight Financing
Because CFDs are traded on margin, if you hold a position open
overnight it will be subject to a finance charge. Long CFD positions
are charged interest, Short CFD positions will be paid interest.
The rate of interest charged is set at 3%** above or below the
current LIBOR (London Inter Bank Offered Rate). The interest
on each position is calculated daily by applying the applicable
interest rate to the daily closing value of the position. The daily
closing value is the number of shares multiplied by the closing
price. Each days interest calculation will be different unless there
is no change in the share price.

Shares and Indices

No Stamp Duty

CFDs allow you to take a view on shares and indices as well as


some sector specific indices (such as Mining). See page 10 for
more details.

There is no stamp duty on CFDs as you do not actually Buy the


underlying share*.

Risk Management Facilities

*Tax laws may change

We place strong emphasis on risk management techniques.


Robust risk management to protect profit and limit downside risk
is as important as placing the trade
Because of the higher risk nature of trading on margin, we can
offer comprehensive Stop Loss Order and Limit Order facilities
so that investors can manage risk in fast moving markets.
**Subject to change

Page 4

CFDs explained

Guardian
Education
Guardian, via one to one meetings, talk you through your trading
strategy, objectives and how to best manage your expectations.
Youll also benefit from useful information online to help you make
the most of trading with us, including a range of helpful guides to
develop yourtrading skills.

Demo Accounts

Including:

Our demo platform has real time pricing and will allow you to
undertake the following:

33 Trading CFDs vs Convential Equities.


33 Pyschology of Trading.
33 Market Fundamentals.
33 Technical Analysis.

This will allow you to practise placing trades on our CFD platform,
practise your trading strategy, work your way around the system
and be comfortable on how to enter and exit trades.

33 Place all variations of Orders.


33 Place Stop and Limit Orders to take profit at a pre
determined level and to minimise downside risk.

33 Fundamental Analysis.

33 Using our trading information consisting of Charting


& Fundamental Analysis.

33 How to trade around your physical portfolio (if applicable).

For more information, visit www.guardianstockbrokers.com

33 How to trade from Economic Figures (both UK / US).


33 Advantages and Disadvantages of Trading CFDs.
33 How to trade CFDs via a SIPP.

Trading Plan
Guardian will discuss your trading plan in person and focus on
the following:
33 How much capital you would like to commit?
33 What are you looking to use the account for? Speculation,
hedging and/or dividend trading.
33 Are you focusing on a specific sector or commodity?
33 Trading Plans can be tailored to your individual needs.
This will be conducted in greater detail during the account opening
process.

Page 5

CFDs explained

Share CFD
example
Long Trade
A Long trade is when you Buy a share CFD
Marks and Spencer is trading at 240240.25p

Profit on trade is calculated as follows:


Opening Level

240.25p

You believe that Marks and Spencers share price is going to rise
and place a trade to Buy 5000 shares as a CFD at 240.25p.
The value of the contract would be 12,012.50, but you would
only be required to make an initial deposit of 10% (Initial Margin)
of 1,201.25.

Closing Level

Total commission

(127.56) 50 bps

The commission on the trade is 60.06 (12,012.50 x 0.5%)


unlike a traditional share there is no stamp duty payable.

Interest payments

(29.60)

10 days later Marks and Spencer is trading at 270270.25p


You decide to close your position and take a profit by selling
5000 Marks and Spencer at 270p which equates to 13,500.
The commission on the trade is 67.50 (13,500 x 0.5%).

Difference
Profit on trade

Overall Profit

270p
29.75p
1,487.50 (29.75p x 5000)

1330.34

Of course if the market had moved against you, you would have
made a loss.
For more detailed CFD trading examples please visit our website
www.guardianstockbrokers.com

Page 6

CFDs explained

Share CFD
example
Short Trade
A Short trade is when you Sell a share CFD
Marks and Spencer is trading at 300300.25p
You believe that Marks and Spencers share price is going to fall
and place a trade to sell 5000 shares as a CFD at 300p. The value
of the contract would be 15,000, but you would only be required
to make an initial deposit of 10% (Initial Margin) of 1,500.
The commission on the trade is 75 (15,000 x 0.5%).
10 days later Marks and Spencer is trading at 280280.25p
You decide to close your position and take a profit by buying 5000
Marks and Spencer at 280.25p. The commission on the trade is
70.06 (14,012.50 x 0.5%).

Profit on trade is calculated as follows:


Opening Level
Closing Level
Difference
Profit on trade

300p
280.25p
19.75p
987.50 (19.75p x 5000)

Total commission

(145.06) 50 bps

Interest payments

7.70

Overall Profit

850.14

Of course if the market had moved against you, you would have
made a loss.
In this example by being Short M&S, interest payments are credited to your account.
For more detailed CFD trading examples please visit our website
www.guardianstockbrokers.com

Page 7

CFDs explained

Example
Indices
Trade Long

Example
Indices
Trade Short

The FTSE 100 is currently trading at 5792 and the quote is 5791
5793 on the FTSE CFD. You believe that the FTSE is going to rise
and Buy 1 Maxi Index CFD at a total value of 57,930. To open
your position you supply a deposit of 2,000 per Maxi Contract.
Later that day FTSE has risen to 5991 and the daily FTSE spread
is now 59905992. You decide to close your position and take a
profit by selling 1 Maxi Index CFD which equates to 59,900.

The FTSE 100 is currently trading at 4400 and the quote is 4399
4401 on the FTSE CFD. You believe that the FTSE is going to fall
and sell 1 Maxi Index CFD at a total value of 43,990. To open your
position you supply a deposit of 2,000 per Maxi Contract. Later
that day FTSE has fallen to 4299, spread is now 42984300.
You decide to close your position and take a profit by buying 1
Maxi Index CFD which equates to 43,000.

The profit on the trade is calculated as follows:


Opening Level

5,793.00

Closing Level

5,990.00

Difference
Profit on trade

197.00
(197 x 10) 1,970.00

The profit on the trade is calculated as follows:


Opening Level

4,399.00

Closing Level

4,300.00

Difference
Profit on trade

Overall Profit
To calculate the overall profit you must take into account the commission and financing charges on the deal.
Profit On trade
Commission
Overall Profit On the trade

1,970.00
(50.00)
1,920.00

Of course if the market had moved against you, you would have
made a loss.

99.00
(99 x 10) 990.00

Overall Profit
To calculate the overall profit you must take into account the commission and financing charges on the deal.
Profit On trade

990.00

Commission

(50.00)

Overall Profit On the trade

940.00

Of course if the market had moved against you, you would have
made a loss.
For more detailed CFD trading examples please visit our website
www.guardianstockbrokers.com

Page 8

CFDs explained

Limit
and
Stop Loss Orders
Because of the geared nature of trading on margin it is essential
to have access to facilities that let you open or close positions if
certain levels are reached.

Limit Order

Stop Loss Order

A Limit Order is one that is executed at a better price than the


prevailing market price, i.e. for a Long CFD trade when the stock
drops to a certain level or for a Short CFD trade when the stock
rises to a certain level.

A Stop Loss Order is one that is executed at a worse price than the
prevailing market price. A Stop Loss Order is a price level set by
the client on a particular trade, that if reached, automatically closes
out the particular position at the desired price. It is possible to
make substantial profits when trading CFDs as well as substantial
losses which is why we may recommend you consider placing a
Stop Loss Order when you trade.

Example Limit Order


Cable & Wireless is trading at 180180.5
You want to Buy 10,000 Cable & Wireless as a CFD with a Limit
of 175p, therefore you do not wish the Order to be opened unless
Cable & Wireless reaches 175p.
This Order is held by the CFD Provider until the Limit level is
reached. The next day Cable & Wireless is 174.5175 and an
opening trade of 10,000 Cable & Wireless is executed at the Limit
level of 175p.

Example of Stop Loss


BP is trading at 467468
You believe that BP will rise and you Buy 2,000 BP at 468p as
a CFD. You want to limit your potential losses as the markets are
currently very volatile. You place a Stop Loss Order which will close
out your position at 450p. The following day BP drops steadily to
420421 and you are not able to watch the market. Your position
is closed at 450p limiting your loss to 360, had you not placed
a Stop Loss your losses would be running at 960.

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CFDs explained

Types
of
Trading

Markets

Sector Trading
We can offer advice with a number of trading strategies in this
area:
Aerospace & Defence
Bank
Construction
Engineering & Machinery
Insurance
Leisure, Entertainment
& Hotels
Mining

Oil & Gas


Pharmaceuticals & Biotech
Real Estate
Retail
Telecommunication Services
Tobacco
Transport
Utilities

Pairs Trading
If you believe that one company is undervalued compared to
another company in the same sector (e.g. Rio Tinto against Lonmin) you can use CFDs to go Long on the cheaper stock whilst
going Short on the more expensive stock.

Short Term Trading


The ability to gear up your trading capital by trading on a margin,
combined with no stamp duty make CFDs an ideal instrument for
short-term trading.

Hedging
Hedge physical portfolio for a fraction of the cost.

Guardian Stockbrokers provide the complete trading solution.


Our system allows you to trade online or by telephone in virtually
any financial instrument including:
Shares
You can trade over 7000 individual shares on all major markets
including;
Indices
You can trade all major indices including FTSE 100, FTSE 350,
Dow 30, Nasdaq, S&P 500, CAC 40, DAX and Eurostoxx.
FX
You can trade all major currency pairs as well as many minor currency pairs.
Energy
You can trade all major US and UK Oil and Gas contracts.
Metals
You can trade spot and forward contracts in Gold and Silver.
Commodities
You can trade some of the key contracts in London, Chicago, New
York, and Paris including Cocoa, Cotton, Wheat and Soyabeans.

Page 10

CFDs explained

Why
Trade with
Guardian?
Here at Guardian we want our Brokers to build long term
relationships with their Clients. We will also provide a
Director of Guardian Stockbrokers as a senior point of
contact to all clients in the event you wish to talk to them.
33 First and foremost we value your business.

33 Force open facility.

33 CFD Trading with quality advice specific to your trading


requirements.

33 Only trading when opportunities arise and not being afraid to


be out of the market.

33 No conflict of interest we do not make a market or trade


against your positions.

33 Sophisticated Trading Tools Interactive Real Time Charting


and Technical Analysis.

33 State of the art trading platforms Trade with a combination


of clearing brokers.

33 Full audit trail of all working and filled Orders including a


breakdown of pre and post trading analysis.

33 Strong emphasis on risk management.

33 DMA Trading with Level 2 Access.

33 Cap your exposure with our Limited Risk Account.

33 Work own bid and offers.

33 Active Management System.*

33 Ability to trade within a SIPP Wrapper.

33 Fast and Instant Execution experience of trading 100s of


Orders per day and auction trading.

33 No minimum deposit size.

33 Real time margin / profit / loss.


33 Trading on market spreads.
* Please call to discuss for active traders

33 Accept deposits in GBP / EUR / USD.


33 All Orders emailed / texted to you once placed or exited.

Page 11

CFDs explained

Risk Policy
It is Guardians policy that all CFD advisory clients, should be provided with the following two-way risk warning notice:
You should not deal in CFDs unless you understand their nature and the extent of your exposure to risk. You should also be satisfied
that the product is suitable for you in the light of your circumstances and financial position. Although CFDs can be utilised for the
management of investment risk, it may not be suitable for some investors. In deciding whether to trade in CFDs, you should be aware
of the following points:
(i) CFDs can only be settled in cash. Investing in a CFD carries the same risks as investing in a future or an option or other derivative
product. Transactions in CFDs may also have a contingent liability and you should be aware of the implications of this as set out
below.
(ii) Contingent liability investment transactions, which are margined, require you to make a series of payments against the purchase
price, instead of paying the whole purchase price immediately. If you trade in contracts for differences, you may sustain a total loss
of the margin you deposit with your firm to establish or maintain a position. If the market moves against you, you may be called
upon to pay substantial additional margin at short notice to maintain the position. If you fail to do so within the time required, your
position may be liquidated at a loss and you will be responsible for the resulting deficit. Even if a transaction is not margined, it may
still carry an obligation to make further payments, in certain circumstances, over and above any amount paid when you entered the
contract. Before you begin to trade, you should obtain details of all commissions and other charges for which you will be liable. If
any charges are not expressed in money terms (but, for example, as a percentage of contract value), you should obtain a clear and
written explanation, including appropriate examples, to establish what such charges are likely to mean in specific money terms. In
the case of futures, when commission is charged as a percentage, it will normally be as a percentage of the total contract value, and
not simply as a percentage of your initial payment.

Contracts
for
Difference
Guardian Stockbrokers
14 City Road, London, EC1Y 2AA
T. 020 7638 6996 F. 020 7638 6997
E. info@guardianstockbrokers.com
W. www.guardianstockbrokers.com

Guardian Stockbrokers Limited registered in England and Wales. Company No. 6756375. Registered office: 4345 Dorset Street, London W1U 7NA
Authorised and regulated by the Financial Services Authority (No. 492519).