Sanlam iTrade launches CFD trading online

Sanlam iTrade has launched Contracts for Difference (CFDs) – a type of derivative instrument – on its online trading platform. The offering allows investors to short and gear shares and, unlike with most other CFD providers in SA, investors can trade in the actual share price on the Johannesburg Stock Exchange (JSE) rather than paying quoted doubles.

Gerhard Lampen, head of Sanlam iTrade, explained a CFD is an unlisted instrument that is an agreement between a buyer and a seller to exchange the difference in value of a particular underlying asset (like a share) for the period between when the contract is opened and when it is closed. The difference in value is determined by reference to the underlying asset.

He said the trading costs of CFDs can be a lot cheaper than trading shares. "However, it is important to remember that trading in CFDs is more risky than share trading. CFDs are unlisted and counterparty risk is not guaranteed by an exchange. It is therefore crucial that you deal with a big financial institution like Sanlam that will not go bankrupt.”

To assist clients in limiting potential losses associated with gearing their investment funds in volatile market conditions, Sanlam iTrade’s new online CFD trading platform will provide them with the ability to place stop-loss orders. "Stop-loss techniques and predetermined exit strategies are an integral part of CFD trading, and we have built these into our online offering.”

Lampen says brokers often quote doubles on CFDs based on the price on the JSE. This can sometimes hide the actual costs a client pays. With Sanlam iTrade all the costs are displayed separately, making it fully transparent. Our clients pay the exact JSE price for a CFD with no CFD quotes.”

The advantages of trading CFDs versus trading shares include:

• The ability to short shares: Short selling means selling shares that you don’t own when you expect the share price to fall in future. When it does, you buy back the shares at the lower price and make a profit. It is the opposite of buying shares (going long), when you profit when the share price goes up and lose when it goes down.

• Gearing available funds: Investment funds can be geared with CFDs, both on the long (upward) side and short (downward side). You are required to fund only 15% of the value of the shares you buy or sell, which equates to 6.7 times gearing. Therefore you can make (or, of course, potentially lose) 6.7 times more money than you could if you bought or sold the shares.

CFDs will be traded on the same Iress trading platform Sanlam iTrade currently uses for trading JSE instruments. "You don’t have to learn a new system. All you do is select the account you wish to trade on. You can also trade CFDs using an iPhone and iPad application,” Lampen concludes.

Sanlam iTrade is the online trading division of Sanlam Private Investments. For more information, and to register on Sanlam iTrade to trade CFDs online, visit www.sanlamitrade.co.za