In order to satisfy the growing demand of Indian investors for trading offshore investment products, Spread Co has designed and created a new financial product which incorporates the benefits of traditional share trading and offering leverage. The new asset class is known as Premium Securities. Anand Rathi Group has entered for a Introductory Broker relationship with Spread Co to introduce clients for this financial product.
- Overview
- What is a Premium Security?
- Foreign Exchange
- Trading Premium Securities
- Example Trades
- Charges
Premium Securities
Premium Securities are the new and exciting way to trade world markets all from one online trading account at your fingertips. Our goal is to make your Premium Security trading experience efficient and enjoyable, and support you in what you are looking to achieve.
Puts you in control of your own trading
You can see the prices you are trading at and can choose to deal straightaway or place orders to deal at a future time. You can trade a range of financial products - all from one account. You really are in control of your own trading.
Deal in small or large amounts
Unlike trading physical shares, when trading Premium Securities with us, you can trade as little as one share, one index unit and five thousand units of currencies.
Instant execution of trades
When trading Premium Securities with Spread Co, your trade will be confirmed almost immediately you select the buy / sell button (this is subject to the deal or order size being within permitted limits and the instrument being priced correctly.) You should not have to wait more than a few seconds for prices to be confirmed, except in unusual market circumstances.
Flexibility – Ability to Hold an Investment in a Buy or Sell Position
Premium Securities give you the flexibility to buy or sell. If you buy (go long) a Premium Security, you will make profits should the market price rise and incur losses if market price falls. On the contrary, if you sell (go short) a Premium Security, you will make profits if the market price falls and incur losses if market price rises.
Limited Risk
Trading Premium Security is limited risk trading. Unlike margin trading, where you can lose more than your initial margin, your losses are limited to the initial Investment Amounts for the relevant investment (as increased by top ups you elect to make). Once your Investment Amount drops to zero, your investment will be automatically liquidated. You are protected by Spread Co who automatically creates a stop loss when you purchase a Premium Security investment.
Access to Huge range of Global Markets
Premium Securities also enable you to trade a range of markets across multiple asset classes from a single account.
Extended Trading Hours
24 hours between 10pm on Sunday evening (GMT) to 10pm on Friday evening (GMT), markets are open and available for trading.
Leverage
Premium Securities are leveraged financial instruments. When you buy or sell Premium Securities, you only need a fraction of the nominal amount - the valuation. If the market moves in your favour, your valuation will increase. If the market moves against your favour, your valuation will decrease. The maximum amount you can lose is the initial Investment Amount (as increased by top ups you elect to make). Unlike margined products, profits are potentially unlimited while losses are limited.
Corporate Actions
Like traditional share trading, you can benefit from corporate actions in dividend payments. Corporate actions and dividend payments will be reflected as adjustments to the trade price.
Cash Settlement
Premium Securities are cash settled. When you hold Premium Securities, you will need to place an Investment Amount. When you sell the investment, the sales proceeds will be returned to you. You will not be required to settle the underlying physical asset which may be the case in other markets.
No Partial Fills
In the physical markets, there are times which you may not know whether there is sufficient liquidity to fill your entire order. With Premium Securities, you can be sure that your entire order will be filled up to the normal market size shown by Spread Co. Within predefined quantity limits, Premium Security eliminates partial fills.
Brand New Product Class
Premium Securities are new products and are launched as collaboration between Anand Rathi and Spread Co. We are the first to launch this product. Please click here to get more information regarding Premium Securities
Competitive prices
We believe we are one of the most competitive providers in the marketplace for the instruments we offer. See the Fees List for full details of the current charges.
New technology with additional features
You can customise your trading screen and lay it out how you want to see it. You can also store numerous layouts for easy access to what you need to see quickly. Alternatively you can simply use the default versions Spread Co will provide you with. See Trading Platform User Guides for more details.
Transparency
Spread Co provides total transparency on your trading history through daily and monthly statements. These will be emailed to you and are also always available through the trading system itself.
See Daily Statements and Monthly Statements for examples of these.
What are Premium Securities?
A purchase of a Premium Security Investment is one where you make a fixed investment to gain a leveraged exposure to an underlying financial instrument at its current market price.
The embedded leverage in the Premium Security contract means you have the potential of making higher returns, or losses, when compared to trading the cash value of the underlying instrument.
However, similar to purchasing an option, losses are limited to the amount invested.
Unlike option trading the Premium Security has no expiry and you are free to choose when you want to close the position (subject to the Terms of Business).
Derivative Product
Premium Securities are financial derivative trading products. Their prices are derived from the prices of their underlying financial instruments. The underlying of a Premium Security is an asset, index, or even another derivative, such that the cash flows of the derivative depend on the value of this underlying.
When you buy or sell Premium Security, you will not physically own the underlying instrument. With Premium Security, you are gaining exposure to the direction of the future price movement in an underlying instrument. You actually hold a contract with Spread Co to buy or sell a Premium Security paying the Investment Amount and on selling the same investment, receive the sale proceeds (if any).
Pricing
Premium Securities are priced almost identically to their underlying instruments. They are typically quoted on a spot basis. Premium Securities prices move in real-time as the price of their underlying instruments move on the relevant exchange they are quoted or in the inter-bank market.
The Spread
The spread, also known as the dealing spread or the Buy/Sell spread, is the difference between the buy and sell rates at which you can buy and sell Premium Securities.
Spread sizes vary by instrument depending on:
- the liquidity of the underlying instrument
- the volatility of the underlying instrument
- the amount of freely traded shares that exist for the relevant underlying instrument
The size of the spread represents how much the market must move in your favour before you begin to make a trading profit. For example, if you buy 1,000 Google Premium Securities at a $0.05 spread, your trade will begin at a $50.00 loss.
Profit
The two main ways to profit from investing Premium Securities are to:
- Buy at one price then sell at a higher price
- Sell at one price then buy at a lower price
Loss
The two main ways to lose while investing in Premium Securities are to:
- Buy at one price then sell at a lower price
- Sell at one price then buy at a higher price
The underlying instrument for a Google Premium Securities is one share of Google (GOOG) stock. If Google stock is trading at $525.00 – 525.01 per share, then Spread Co will quote a price for Google Premium Securities at or around this price. For example: $524.99 – 525.02.
The underlying instrument for a Spot Gold Premium Securities is one troy ounce of gold. If Spot Gold is trading at $700.00 - $701.00 per one troy ounce of gold, then Spread Co will quote a price for Spot Gold Premium Securities at or around this price. For example: $700.30 – 700.80.
Spread Co is currently quoting Google (GOOG) at $524.99 – 525.02.
$524.99 is the Sell Price quoted by Spread Co, this means you are currently able* to sell 1 Premium Security of Google at $524.99
$525.02 is the Buy Price quoted by Spread Co, this means you are currently able* to buy 1 Premium Security of Google at $525.02
*Subject to quantity limits set according to current market depth and other conditions.
Buying Google Premium Securities at $525.00 and selling Google Premium Securities at $527.00 means a trading profit of $2.00 per Premium Security bought then sold at these prices.
Selling Spot Gold Premium Securities at $702.00 and buying Spot Gold Premium Securities at $700.00 means a trading profit of $2.00 per Premium Security sold then bought at these prices.
Buying Microsoft Premium Securities at $25.00 and selling Microsoft Premium Securities at $23.00 means a trading loss of $2.00 per Premium Securities bought then sold at these prices
Selling Spot Gold Premium Securities at $650.00 and buying Spot Gold Premium Securities at $670.00 means a trading loss of $20.00 per Premium Securities sold then bought at these prices.
Foreign Exchange Premium Securities
Trading FX Premium Securities is the new way to trade a range of different currency pairs, and all from one online trading account at your fingertips. Our goal is to make your FX trading experience efficient and enjoyable, and support you in what you are looking to achieve.
What is Foreign Exchange Premium Securitiess
The foreign exchange (FX or Forex) market is where the world trades currencies. It is the largest, most heavily traded market in the world, with an estimated daily turnover of US$1.9 trillion. It is a true 24-hour market from Sunday 10:00 PM GMT to Friday 10:00PM GMT. Trading starts every day in Sydney and then moves round the world as the business day starts in each financial centre; Tokyo, then London, then New York.
This means that, unlike any other financial market, traders can respond to currency fluctuations caused by economic, social and political events at the time they occur, without having to wait until the relevant Exchange opens.
Spread Co enables you to trade foreign exchange using FX Premium Securities which simulate the price performance of an exchange rate without the need to physically own the relevant currencies.
Currency pairs
During an FX Premium Securities trade, you buy one currency while simultaneously selling another in order to pay for the first currency.
The two currencies which are the subject of a single FX trade are referred to as a currency pair. For example, USDJPY is a commonly traded currency pair. USD stands for United States Dollar and JPY stands for Japanese Yen. The most commonly traded (and therefore most liquid) currencies are known as the “Majors” and this includes the US Dollar, Japanese Yen, Euro, British Pound, Swiss Franc, Canadian Dollar and Australian Dollar. Each currency is referred to for the purposes of FX trading by a three-letter code.
The first currency in a currency pair is called the 'base currency'. The second currency in a currency pair is called the 'quote' or' term currency'. The exchange rate quoted for the purposes of FX trading is how much of the quote currency you need to sell in order to buy one unit of the base currency.
Quotation principles
Exchange rates are almost always quoted with five significant figures. This means that most currencies are quoted to the ten thousandth of a currency unit. For example, 1.8525 would be a valid quote for GBPUSD.
The smallest possible exchange rate movement is called a pip. For example, GBPUSD can increase by 0.0001 from 1.8500 to 1.8501, therefore one pip is equal to 0.0001 for GBPUSD. USDJPY can increase by 0.01 from 115.00 to 115.01 therefore one pip is equal to 0.01 for USDJPY. If USDJPY goes up by 0.15, you would say, "USDJPY went up 15 pips".
The Spread
The spread, also known as “the dealing spread” or “the Buy/Sell spread”, is the difference between the prices at which you can buy and sell.
The spread is how market makers such as Spread Co are compensated for creating a market for you to trade FX. A wide or large spread is more expensive to you. A narrow or small spread is cheaper for you.
The size of the spread represents how much the market must move in your favour before you begin to make a trading profit. Your trades will always begin at a loss calculated by multiplying the trade quantity by the size of the dealing spread.
For example, if you buy 100,000 USDJPY at a JPY 0.03 spread, your trade will begin at a JPY 3000 loss. See more examples on the left.
Popular currency codes
| AUD | Australian Dollar |
| CAD | Canadian Dollar |
| CHF | Swiss Franc |
| EUR | Euro |
| GBP | British Pound |
| JPY | Japanese Yen |
| NZD | New Zealand Dollar |
| SGD | Singapore Dollar |
| USD | US Dollar |
If the exchange rate for USDJPY is 115.00, you must sell 115.00 Japanese Yen to purchase 1.00 US dollars. This means:
- When you BUY ("go long") 100,000 USDJPY, you buy 100,000 USD while simultaneously selling 11,500,000 JPY.
- When you SELL ("go short") 100,000 USDJPY, you sell 100,000 USD while simultaneously buying 11,500,000 JPY.
The underlying instrument for a Spot Gold Premium Securities is one troy ounce of gold. If Spot Gold is trading at $700.00 - $701.00 per one troy ounce of gold, then Spread Co will quote a price for Spot Gold Premium Securities at or around this price. For example: $700.30 – 700.80.
If Spread Co is quoting GBPUSD at 1.7895 / 1.7900, the lower figure (1.7895) is the sell price and the higher figure (1.7900) is the buy price. This means that you can sell GBPUSD at 1.7895 and buy at 1.7900*.
*Subject to quantity limits set according to current market depth and other conditions.
The two main ways to profit from FX trading are as follows:
1. Buy at one exchange rate then sell at a higher rate
e.g. Buying USDJPY at 115.00 and selling USDJPY at 117.00 means a trading profit of 2 JPY per USD. If you buy and sell 100,000 USDJPY, your profit would be JPY 200,000.
2. Sell at one exchange rate then buy at a lower rate
e.g. Selling GBPUSD at 1.8500 and buying GBPUSD at 1.8300 means a trading profit of USD 0.02 per GBP. If you sell and buy 100,000 GBPUSD, your profit would be USD 2,000.
The two main ways to lose in FX trading are to:
1. Buy at one exchange rate then sell at a lower rate
e.g. Buying USDJPY at 115.00 and selling USDJPY at 113.00 means a trading loss of 2 JPY per USD. If you buy and sell 100,000 USD at these rates, your loss would be JPY 200,000.
2. Sell at one exchange rate then buy at a higher rate
e.g. Selling GBPUSD at 1.8500 and buying GBPUSD at 1.8700 means a trading loss of USD 0.02 per GBP. If you sell and buy 100,000 GBP at these rates, your loss would be USD 2,000.
Profit Making Example
USD account - Profit Making Long Investment
GBP/USD is trading at 2.0101/04 and you feel that the price is going to rise in value. You decide to go long so you buy 100,000 GBP/USD Premium Security at 2.0104. You now hold a buy investment of 100,000 GBP/USD at 2.0104 with a contract size of $201,040 (100,000 x 2.0104). A sell stop loss order has been created by Spreadco to protect your investment.
The Investment Amount required for this investment is USD$4,020.80{(100,000/50) x 2.0104}. This amount will be allotted to this investment and debited from your account. If the market moves against you, the maximum amount of losses that you will incur will be limited to $4,020.80, the Investment Amount.
You decide to hold the investment overnight. GBP/USD closed at 2.0110. Financing credits for one day = (Closing Price x Financing Interest Rate)/Days in calendar year = (2.0110 x 2%)/365 days = $0.0001101. Your financing credits will be less off from your traded price of 2.0104. Your adjusted traded price will be 2.0104 - 0.0001101 = 2.0102899. As a result of the financing credits, you are now long 100,000 GBP/USD at the price of 2.0102899.
On the next day, the price of GBP/USD rose to 2.0140/2.0143 and you decide to sell the investment to collect your profits. You sell 100,000 GBP/USD at 2.0140. Your sell stop loss order has been automatically cancelled by Spread Co.
Initially, you bought 100,000 GBP/USD at 2.0104, then your traded price was adjusted to 2.0102883 and later you sold 100,000 GBP/USD at $2.0140. As a result, you made a profit of $371.01 [(2.0140 – 2.0102899) x 100,000]. Your Investment Amount of $4,020.80 and profits of $371.01 will be credited back to your account.
Loss Making Example
USD account - Loss Making Short Investment
EUR/USD is trading at 1.4098/1.4101 and you feel that the price is going to fall in value. You decide to go short so you sell 100,000 EUR/USD Premium Security at 1.4098. You now have a sell investment of 100,000 EUR/USD at 1.4098 with a contract size of $140,980 (100,000 x $1.4098). A buy stop loss order has been created by Spread Co to protect your investment.
The Investment Amount required for this investment is $2,819.60 {(100,000/50) x 1.4098}. This amount will be allotted to this investment and debited from your account. If the market moves against you, the maximum amount of losses that you will incur will be limited to $2,819.60, the Investment Amount.
You decide to hold the investment overnight. EUR/USD closed at 1.4085. Financing credits for one day = (Closing Price x Financing Interest Rate) / Days in calendar year = (1.4085 x 2%)/ 365 day = $0.0000771. As you are selling Euro Dollar which has a higher interest rate compare to US Dollar, you will be charged with financing differential. The financing debit is adjusted into the traded price of $1.4098. Your adjusted traded price will be $1.4098 – 0.0000771 = $1.4097229. As a result of the financing debits, you are now short 100,000 EUR/USD Premium Security at the price of 1.4097229.
On the next day, the price of EUR/USD rose to 1.4110/13 and you intend to buy your investment back to realize your losses. You buy 100,000 EUR/USD at 1.4113. Your buy stop loss order has been automatically cancelled by Spreadco.
Initially, you sold 100,000 EUR/USD Premium Security at 1.4098 and then your trade price was adjusted to 1.4097229 and later you bought 100,000 EUR/USD at 1.4113. As a result, you incurred a loss of -$157.71 [(1.4097229 – 1.4113) x 100,000]. Your Investment amount of $2,819.60 less losses of $157.71 = $2,661.89 will be credit back to your account.
Trading Premium Securities
You can buy and sell Premium Securities by investing only a fraction of the full cash value of the instrument being bought and sold. This is called the Investment Amount.
How to calculate the Investment Amount
Investment Amount = [Trade Quantity x Trade Price] / Leverage Factor*
- Investment Amount: The amount of cash which will be deducted from your account when you open a position.
- Trade Quantity: The quantity of which you can buy or sell.
- Trade Price: The executed price of the position.
Top Up Function
Spread Co’s unique Top Up Function allows you to reduce the leverage applied on any one Premium Securities Contract by increasing the Investment Amount allocated to that Contract.
By increasing your Investment Amount, your Premium Security indicative stop loss level will be moved further away from the current market price, allowing you to sustain larger and more volatile adverse market movements. Please note that this will also have the effect of increasing your possible loss to the increased Investment Amount.
Cash Back
Our unique Cash Back Function allows you to increase the leverage applied on any one Premium Securities Contract by decreasing the Investment Amount allocated to that Contract.
This Cash Back Function allows you to withdraw part of the Investment Amount, moving the stop loss level closer to the current market price.
If the valuation of your investment is more than the initial Investment Amount, you can withdraw an amount equivalent to the total profit and any excess above the minimum investment amount requirement. If the valuation of your investment is less than the initial Investment Amount, you can withdraw any excess above the Minimum Investment Amount Requirement. The Minimum Investment Amount Requirement is calculated as (Trade Quantity x Trade Price) / (Leverage Factor* x 2).
Valuation
All Premium Securities are marked to market on a timely basis. You will be able to find out the “net worth” of your Premium Security investments by looking at the Valuation. Valuation is calculated by adding profit (or subtracting losses) to the Investment Amount.
Corporate Action
Premium Security investors are entitled to Corporate Action such as Dividends on trades based on equities. The traded price for the position is adjusted to reflect dividends. Adjusted trade price for long equity investments = Trade price –- Cash Dividends
Limiting Your Losses
There are two main ways in which you can profit from investing in Premium Securities:
- Buy at one price then sell at a higher price
- Sell at one price then buy at a lower price
Unfortunately, markets might not move in your favour every time you trade. You might incur losses when markets move lower when you buy, or move higher when you sell. Therefore, it is best to have risk management tools to assist you in limiting your losses. Spread Co creates a stop loss to protect you if the market moves against you.
When you buy or sell Premium Securities, a new stop loss order will automatically be created. If the price of the Premium Securities trades to the stop loss level, the investment will be closed off.
In the event that the market gaps up or down and Spread Co is unable to close your position at the stop loss level, Spread Co will guarantee that you will not lose more than the Investment Amount you placed on the position. Therefore, your risk will be limited to the initial Investment Amount (as adjusted by top ups that you have elected to make).
You bought 1,000 Microsoft Premium Securities at $25.00.
Leverage factor for Equities is 10.
Investment Amount = [1,000 x 25] / 10 = US$2,500
US$2,500 will be deducted from your cash balance.
Upon closing the open position, the Sales Proceeds (Investment Amount + profit/loss – charges such as commission) will be credited into your cash balance immediately.
You sold 10 Dow Jones Premium Securities at 13,500.
Leverage factor for Indices is 50.
Investment Amount = [10 x 13500] / 50 = US$2,700
US$2,700 will be deducted from your cash balance.
Upon closing the open position, the Sales Proceeds (Investment Amount + profit/loss – charges such as commission) will be credited into your cash balance immediately.
Valuation of Investment is more than the Initial Investment Amount
You bought 1,000 Microsoft Premium Securities at US$25.00. Leverage factor for Equities is 10. The current price of Microsoft is US$26.00/US$26.05.
Investment Amount = (Trade Quantity x Trade Price)/Leverage Factor*
Investment Amount = [1,000 x 25] / 10 = US$2,500
P/L = (US$26 – US$25) x 1,000 = US$1,000
Valuation = US$2,500 + US$1,000 = US$3,500
Maximum Amount you can cash back = Profit + Excess Above the Minimum Investment Amount (Valuation – Profit – Minimum Investment Amount) = US$1,000 + (US$3,500 – US$1,000 – [1,000 x US$25 / (10 x 2)] = US$2,250
Valuation of Investment is less than the Initial Investment Amount
You sold 1,000 Microsoft Premium Securities at US$25.00. Leverage factor for Equities is 10. The current price of Microsoft is US$26.00/US$26.05
Investment Amount = (Trade Quantity x Trade Price)/Leverage Factor*
Investment Amount = [1,000 x 25] / 10 = US$2,500
P/L = (US$26.05 – US$25) x 1,000 = US$1,050
Valuation = US$2,500 – US$1,050 = US$1,450
Maximum Amount you can cash back = Any Excess Above the Minimum Investment Amount Requirement (Valuation – Minimum Investment Amount Requirement) = $1,450 - [(1,000 x 25)/ (10 x 2)] = $200
Example Trades
Example 1 – Profit Making (Long Investment)
Microsoft is trading at 23.95/24.00 and you feel that the price is going to rise in value. You decide to go long so you buy 1,000 Microsoft Premium Securities at $24.00. You now hold a buy investment of 1,000 Microsoft Premium Securities with a contract size of: $24,000 (1,000 x $24.00).
A sell stop loss order has been created by Spread Co to protect your investment. The Investment Amount required for this investment is $2,400 (1,000 x $24.00/10). This amount will be allotted to this investment and debited from your account.
Investment Amount =Trade Quantity X Trade Price/ Leverage Factor*
If the market moves against you, the maximum amount of losses that you will incur will be limited to $2,400, the Investment Amount.
You decide to hold the investment overnight. Microsoft closed at $24.12.
Financing charges for one day = (Closing Price x Financing Interest Rate)/Days in calendar year
Therefore your financing charge for one day is ($24.12 x 8%)/360 days = $0.00536
Your financing charge will be added to the traded price of $24.00. Your adjusted traded price will be $24.00 + 0.005366 = $24.00536. As a result of the financing charges, you are now long 1,000 Microsoft Premium Securities at the price of $24.00536.
On the next day, the price of Microsoft rose to 24.25/24.30 and you intend to sell the investment to collect your profits. You sell 1,000 Microsoft Premium Securities at the price of $24.25. Your sell stop loss order has been automatically cancelled by Spread Co.
You bought 1,000 Microsoft Premium Securities at the price of $24.00536 and later sold 1,000 Microsoft Premium Securities at the price of $24.25. As a result, you made a profit of $244.64 [($24.25 – 24.00536) x 1,000]
Your Investment Amount of $2,400 and profit of $244.64=$2,644.64 will be credited back to your account.
*Spread Co does not require clients to pay the full contract value. A pre-fixed leverage factor will be applied to different products. Leverage factors vary between products. Equities=10, Currencies,Commodities & Indicies= 50
Example 2 – Loss Making (Short Investment)
Microsoft is trading at 23.95/24.00 and you feel that the price is going to fall in value. You decide to go short so you sell 1,000 Microsoft Premium Securities at $23.95. You now have a sell investment of 1,000 Microsoft with a contract size of $23,950 (1,000 x $23.95).
A buy stop loss order has been created by Spread Co to protect your investment.
The investment amount required for this investment is $2,395 (1,000 x $23.95/10).
Investment amount = Trade Quantity X Trade Price/ Leverage Factor*
This amount will be allotted to this investment and debited from your account.
If the market moves against you, the maximum amount of losses that you will incur will be limited to $2,395 the investment amount.
You decide to hold the investment overnight. Microsoft closed at $24.12.
Financing charges for one day = (Closing Price x Financing Interest Rate)/Days in calendar year
Therefore your financing charge for one day is (24.12 x 3%)/360 days = $0.00201 . Your financing charge will be added to the traded price of $23.95. Your adjusted traded price will be $23.95 + 0.00201 = $23.95201. As a result of the financing charges, you are now short 1,000 Microsoft Premium Securities at the price of $23.96201.
On the next day, the price of Microsoft rose to $24.50/55 and you buy your investment back to realize your losses. You buy 1,000 Microsoft Premium Securities at $24.55. Your buy stop loss order has been automatically cancelled by Spread Co.
Initially, you sold 1,000 Microsoft Premium Securities at 23.95536 and later you bought 1,000 Microsoft Premium Security at $24.55. As a result, you incurred a loss of -$597.99 [($23.95201 – 24.55) x 1,000]. Your investment amount of $2,395 less losses of $597.99 = $1,797.01 will be credit back to your account.
*Spread Co does not require clients to pay the full contract value. A pre-fixed leverage factor will be applied to different products. Leverage factors vary between products. Equities=10, Currencies,Commodities & Indicies= 50
Example on Top Up Function – Profit Making (Long Investment)
Microsoft is trading at 23.95/24.00 and you feel that the price is going to rise in value. You decide to go long so you buy 1,000 Microsoft Premium Security at $24.00. You now hold a buy investment of 1,000 Microsoft with a contract size of $24,000 (1,000 x $24.00).
A sell stop loss order has been created by Spread Co to protect your investment and the stop loss level is at $22.32.
The investment amount required for this investment is $2,400 (1,000 x $24.00/10).
Investment amount = Trade Quantity X Trade Price/ Leverage Factor*
This amount will be allotted to this investment and debited from your account.
If the market moves against you, the maximum amount of losses you will incur will be limited to $2,400, the investment amount.
The price of Microsoft fell to 23.40/45. Your mark to market losses are [($23.40 – 24.00) x 1,000] = -$600. Although the market fell, you feel that the market will rebound and rise in value later.
You decide to top up $1,000 cash into your investment amount. Your new investment amount will be $2,400 + $1,000 = $3,400
New Invesment Amount = Old Investment Amount + Top Up Amount
Your new stop loss level has been moved from $22.32 to $21.62.
Market rebounds and the price of Microsoft rose to 24.50/55. You decide to sell 1,000 Microsoft Premium Securities at $24.50. Your sell stop loss order has been automatically cancelled by Spread Co.
Initially, you bought 1,000 Microsoft Premium Securities at $24.00 and later sold 1,000 Microsoft Premium Securities at $24.50. As a result, you made a profit of $500 [($24.50 – 24.00) x 1,000].
Your investment amount of $3,400 and profit of $500 = $3,900 will be credited back to your account.
*Spread Co does not require clients to pay the full contract value. A pre-fixed leverage factor will be applied to different products. Leverage factors vary between products. Equities=10, Currencies,Commodities & Indicies= 50
Example on Top Up Function – Loss Making (Short Investment)
Microsoft is trading at 23.95/24.00 and you feel that the price is going to fall in value. You decide to go short so you sell 1,000 Microsoft Premium Securities at $23.95. You now have a short investment of 1,000 Microsoft Premium Securities with a contract size of $23,950 (1,000 x $23.95).
A sell stop loss order has been created by Spread Co to protect your investment and the stop loss level is at $25.63.
The investment amount required for this investment is $2,395(1,000 x $23.95/10).
Investment Amount = Trade Quantity X Trade Price/ Leverage Factor*
This amount will be allotted to this investment and debited from your account.
If the market moves against you, the maximum amount of losses you will incur will be limited to $2,395, the investment amount..
The price of Microsoft rose to 24.40/45. Your mark to market losses are [ ($23.95 – 24.45) x 1,000] = -$500. You still strongly feel that the market will fall in value.
You decided to top up $1,000 cash into your investment amount. Your new investment amount will be $2,395 + $1,000 = $3,395
New Invesment Amount = Old Investment Amount + Top Up Amount
Your new stop loss level has been moved from $25.63 to $26.33.
Market rose further and the price of Microsoft is now 26.28/33.Your stop loss order is triggered and you bought 1,000 Microsoft Premium Securities at $26.33.
Initially, you sold 1,000 Microsoft Premium Securities at $23.95 and later bought 1,000 Microsoft Premium Securities at $26.33. As a result, you incurred a loss of $2,380 [ ($23.95 – 26.33) x 1,000].
Loss= Trade Price- Price of Stop LossX Trade Quantity
Your investment amount of $3,395 less losses of $2,380 = $1,015 will be credited back to your account.
*Spread Co does not require clients to pay the full contract value. A pre-fixed leverage factor will be applied to different products. Leverage factors vary between products. Equities=10, Currencies,Commodities & Indicies= 50
Example on Top Up Function – Loss Making (Long Investment)
Microsoft is trading at 23.95/24.00 and you feel that the price is going to rise in value. You decide to go long so you buy 1,000 Microsoft Premium Securities at $24.00.
You now hold a buy investment of 1,000 Microsoft Premium Securities with a contract size of $24,000 (1,000 x $24.00). A sell stop loss order has been created by Spread Co to protect your investment and the stop loss level is at $22.32.
The Investment Amount required for this investment is $2,400 (1,000 x $24.00/10). This amount will be allotted to the position and debited from your account. You decide to hold the investment overnight. Microsoft closed at $24.12. Overnight charges for one day = (Closing Price x Financing Interest Rate)/Days in calendar year = ($24.12 x 8%)/360 days = $0.00536. Your overnight charge will be added to the traded price of $24.00. Your adjusted traded price will be $24.00 + 0.00536 = $24.00536.
As a result of the overnight charges, you are now long 1,000 Microsoft Premium Securities at the price of $24.00536.
Scenario 1
The price of Microsoft moves down to the stop loss level at $22.32
Your stop loss order is triggered and you sold 1,000 Microsoft at $22.32. Your position has been closed.
You bought 1,000 Microsoft at $24.00536 and later sold 1,000 Microsoft at $22.32. As a result, you incurred a loss of $1,685.36 [($24.00536 – 22.32) x 1,000]
Your Investment Amount of $2,400 less losses of $1,685.36 = $714.64 will be credited back to your account.
Scenario 2
The price of Microsoft gaps down to $21.50
Your stop loss order is triggered and you sold 1,000 Microsoft. Your position has been closed.
Losses = [($21.50 – 24.00536) x 1,000] = 2,505.36. But since the maximum amount you would lose is your Investment Amount, you would therefore lose only $2,400.00.
There will be no additional movement in your account since your Investment Amount of $2,400.00 has already been debited from your account when you opened your position initially.
Overnight Pricing Adjustments
Overnight Pricing Adjustment is the pricing adjustment made to the Trade Price of the Premium Security purchased as a result of overnight financing or corporate actions
How to calculate Financing
Financing = [Closing Price X Interest Rate] / days X days in calendar year
- Closing Price : Price at which the Premium Security closed at.
- Interest rate : interest rate is based on the interbank overnight interest rate plus a haircut charged by Spread Co. The haircut is essentially Spread Co’s mark up.
- Days : Number of days to charge financing.
Days in calendar year : 360 or 365 days, depending on the instrument
Premium Securities utilize leverage. The leverage embedded in each Premium Security contract varies depending on the underlying instrument bought or sold. For each day you hold the Premium Security contract, Spread Co will adjust the price to account for any financing of the nominal position. These financing cash flows (debits or credits) are applied to the Premium Security contract automatically and reflected in the price adjustment at the end of the trading day (assuming the position is not closed before the end of the day).
Typically if you have a buy position your Premium Security contract (being leveraged) will incur financing charges – these charges are reflected in the adjustment of the trade price at which you first entered to trade. Similarly if you hold a sell position your Premium Security contract (being leveraged) may receive financing credits – again these credits are reflected in the adjustment to the traded price.
Corporate actions will similarly affect the trade price and adjustments will be made in a similar way depending on whether these cash flows are debits or credits
You bought 1,000 Microsoft Premium Securities at $25.00. Microsoft pays 15 cents dividend/share
15 cents x 90% = 13.5 cents
25 – 0.135 = 24.865
You will be buying at a slightly lower price because of the dividend you are receiving. As dividends are priced into the Premium Security trade price, dividends are built into the valuation of the Premium Security.
You bought 1,000 Microsoft Premium Securities at $25.00. Microsoft pays 15 cents dividend/share
15 cents x 90% = 13.5 cents
25 – 0.135 = 24.865
You will be buying at a slightly lower price because of the dividend you are receiving. As dividends are priced into the Premium Security trade price, dividends are built into the valuation of the Premium Security.
You bought 1,000 Microsoft Premium Securities at $25.00. Microsoft closed at $24.00 that day.
= $0.0048333
= $25.004833. You are buying at a slightly higher price because of financing charges.
= (24.98 - 25.004833) x 1,000
= -24.833
= 1,250 – 24.833
= $1,225.16
Financing charges are incorporated into the current valuation.
You sold 1,000 Microsoft Premium Securities at $25.00. Microsoft closed at $27.00 that day.
15 cents x 90% = 13.5 cents
25 – 0.135 = 24.865
You will be buying at a slightly lower price because of the dividend you are receiving. As dividends are priced into the Premium Security trade price, dividends are built into the valuation of the Premium Security.
FX Overnight Pricing Adjustments
There are two main costs when you invest in FX. The first are daily rollover financing charges. Your trade price will be adjusted to receive a rollover financing credit for being long in a higher interest yielding currency and short in a lower interest yielding currency. Conversely, your trade price will be adjusted to incur a rollover financing debit for being short in a higher interest yielding currency and long in a lower interest yielding currency.
The second cost is the dealing spread. The dealing spread is an indirect cost of buying and selling Premium Securities that is incurred both when you place a trade and when you close the associated position. As mentioned, the spread is difference between the Buy and Sell rates at which you can buy and sell the Premium Securities.
Financing
When you hold a Premium Security overnight, you will pay or receive financing interest. If you have an investment with a buy position in a higher interest yielding currency and short in a lower interest yielding currency, you will receive financing credit. If you have an investment with a buy position in a lower interest yielding currency and short in a higher interest yielding currency, you will incur financing debit. Financing is adjusted into the traded price and funds are not debited or credited to your account.
You sold 100,000 USDJPY Premium Securities at 103.00. USDJPY closed at 103.50 that day.
Since USD has a higher interest than JPY, you will have to pay financing charges.
Financing charges paid by you = [103.50 x 3.75% / 360 days] x 1 day = 0.0107812
On day 2, the adjusted trade price = 103.00 – 0.0107812 = 102.98922. You are selling at a slightly lower price because of financing charges.
You bought 100,000 USDJPY Premium Securities at 103.00. USDJPY closed at 103.50 that day.
Since USD has a higher interest than JPY, you will receive financing credits.
Financing credits received by you = [103.50 x 3.75% / 360 days] x 1 day = 0.0107812
On the day 2, the adjusted trade price = 103.00 – 0.0107812 = 102.98922. You are buying at a slightly lower price because of financing credits.