CFDs, Futures and Traded Options
WHI have been operating a futures and traded options service for over 20 years, primarily dealing in UK Equity and Index Options quoted on NYSE Euronext. The service can be tailored to a client’s needs and can be used in conjunction with a traditional portfolio to offer downside protection and increase the overall returns, or alternatively can be used to trade specific stategies in individual stocks or the FTSE 100 index itself. Although often seen as higher risk, derivatives can be used defensively to help lower risk, smooth returns and protect against adverse market movements.
Many people have been attracted to these instruments in recent years. CFD trading is very similar to normal share dealing. You deal at the cash price of the share, and pay a commission which is calculated as a percentage of the value of the transaction.
Holders of a long or short CFD position are required to deposit margin as collateral rather than pay the full underlying value of the stock. A CFD has no settlement date and is in theory an open-ended contract. However, for all long contracts a financing fee is charged, normally a spread over LIBOR. On short contracts the client will be entitled to the rebate.
CFDs can be used in a variety of situations:
- To hedge against adverse movements in one market, for a favourable movement in another
- Short term speculation
- To give access to a wide range of investment markets
Advantages of CFDs:
- CFDs are traded on margin, so you can take a position without having to pay the full value of the transaction
- Payment is sometimes as little as 5% therefore maximising your trading capital
- No stamp duty is payable (saving 0.5% on traditional share purchase)
- The ability to go short, i.e. profit from a falling market as well as a rising market
- Risk protection using stop losses and limit orders
CFDs, futures and traded options are a leveraged product and can result in losses that exceed your initial deposit. Trading CFDs will be classified as high risk and may not be suitable for everyone, please ensure that you fully understand the risks involved before using this investment tool.
To learn more about WHI CFD, futures and traded options services please contact your WHI Investment Manager.
To download a factsheet containing the above information, please click here.
