CFDs – Key Information Document – CFD on a FX Pair
This document provides you with key information about this investment product. It is not marketing material. The information is required by law to help you understand the nature, risks, costs, potential gains, and losses of this product and to help you compare it with other products.
Manufacturer:
Vector Financial Services (Pty) Ltd Registration Number 2018/221248/07 (FSP No. 49977)
Principal place of Business:
26 BAKER STREET, ROSEBANK, JOHANNESBURG, GAUTENG, 2196, SOUTH AFRICA
Supervised Authority: Financial Sector Conduct Authority of South Africa (‘FSCA’).
Riverwalk Office Park, Block B, 41 Matroosberg Road, Ashlea Gardens, Pretoria, 0081
You are about to purchase a complex product that is difficult to understand.
Product Description
Contracts for Differences (CFDs), are complex financial products in accordance with the applicable law.
They are traded on an ‘over-the-counter (‘OTC’) basis and not through a regulated market. CFDs are agreements to exchange the difference in value of a particular underlying instrument between the time at which the agreement is entered into and the time at which it is closed, allowing the investors to replicate the economic effect of trading in particular currencies or other asset classes without requiring actual ownership.
An FX pair (i.e. EUR/USD) involves the simultaneous buying and selling of two different currencies. The (EUR) of the said pair represents the base currency, and the (USD) represents the quote currency.
When trading CFDs there is no physical exchange of assets; therefore, financial settlement results from the difference at the time the position is closed and the price of the underlying asset (formulated by the Counterparty) at the time the position is opened.
The most common underlying assets include stocks, commodities, currencies, and market indices.
The amount of any profit or loss made on a CFD trade will be determined by:
- The difference between the opening trade price and the price when you close the trade;
- The units traded;
- Any adjustments in respect of the CFD, for example, where a dividend is paid on an underlying share/index;
- Any holding costs or commissions relating to the CFD;
- The tick or pip value of the traded instrument;
In order for a position to be opened, an investor should have sufficient funds in the trading account to cover the required margin for that position.
The margin required for the various CFDs can be found on our website and/or platform.
When a position is closed, the investor gains the difference between the market value of the underlying asset at the time of closing the position, if:
When holding a long position (buying a CFD), the price at the time the position closes, is higher than the price at the time the position was opened, which is automatically converted to the trading account currency; or
When holding a short position (selling a CFD), the price, at the time the position closes, is lower than the price at the time the position was opened, which is automatically converted to the trading account currency
To close an open ‘buy’ or ‘long’ CFD you sell it, and to close an open ‘short’ or ‘sold’ CFD you buy it. With most CFDs you can hold the position for as long as you like, which may be for less than a day, or for months.
The Closing Level will be the last available price at or prior to the close or the applicable official closing quotation or value in the relevant underlying market as reported on the platform; minus any commission or spread which is applied to the CFD when it is closed.
CFDs – Leverage and Margin
CFDs are leveraged financial instruments, that allow the investor to trade on higher exposures on the underlying assets compared to the invested amounts.
With CFDs, you only have to put in a portion of the market value of the underlying instrument when making a trade. The leverage is usually specified as a ratio, such as 1:10, 1:20 or 1:30. This means that you can trade with amounts proportionally higher than you could invest in a particular CFD.
The initial margin is the amount required by the investor to open a certain position in CFDs and is expressed as a percentage of the nominal exposure. The lower the percentage the higher the financial leverage.
Examples:
An investor wishes to purchase 300,000 units of EURUSD at price 1.18430 with margin requirement of 3.33% (which is equal to 1:30 leverage) for that instrument. This requires for the investor to place a margin of: 100,000 units / leverage (30) = EUR 3,333 (Base Currency of traded pair – EURUSD