KID – CFD’s on an Index

KEY INFORMATION DOCUMENT (“KID”) – CFD’s on Indices

Purpose

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.

Products

This KID relates to CFD’s on Indices provided by Clear Capital Markets, a firm authorised and regulated in the UK by the Financial Conduct Authority under Firm Reference Number: 706689. +44 (0)20 3869 6080. This product can be traded through through, City Index, Saxo Bank and TradeTech here on known as ‘The Platforms’.

What is this product?

Type

A CFD is a leveraged contract entered into with The Platform on a bilateral basis. It allows an investor to speculate on rising or falling prices in an underlying index.

An investor has the choice to buy (or ‘go ‘long’’ on) the CFD to benefit from rising index prices; or to sell (or ‘go ‘short’’ on) the CFD to benefit from falling index prices. The price of the CFD is derived from the price of the underlying index futures price. For instance, if an investor is long a FTSE 100 CFD and the price of the underlying index rises, the value of the CFD will increase. At the end of the contract, The Platform will pay the difference between the closing value of the contract and the opening value of the contract. Conversely, if an investor is long and the price of the underlying index falls, the value of the CFD will decrease. At the end of the contract, the investor will pay The Platform the difference between the closing value of the contract and the opening value of the contract. The leverage embedded within all CFDs has the effect of magnifying both profits and losses.

Objectives

The objective of the CFD is to allow an investor to gain leveraged exposure to the movement in the value of the underlying index (whether up or down), without needing to buy or sell the underlying index. The exposure is leveraged since the CFD only requires a small proportion of the notional value of the contract to be put down as initial margin. As an example, if an investor buys one CFD with a contract size of £10, with an initial margin of 5% and an underlying index price of 7000, the initial investment will be £3,500 (5% x 7000 x £10). However, the notional value of the contract is £70,000 (7000 x £10). This shows the effect of leverage, in this case 20:1 (1 / 5%). As the contract size for this market is £10, for every one-point the underlying index market moves the value of the CFD changes by £10. For instance, if the investor is long and the market increases in value, a £10 profit will be made for every one-point increase in that market. However, if the market decreases in value, a £10 loss will be incurred for each point the market decreases in value. Conversely, if an investor holds a short position, a profit is made in line with any decreases and a loss for any increases in the market. Additional funds may need to be deposited in the case of negative price movement. Failure to do so may result in the CFD being auto-closed. The Platform also retains the ability to terminate any CFD where it deems that the terms of the contract have been breached.

Cash and futures contracts have a pre-defined maturity date but can be exited prior to this date. In the case of futures contracts, transactions will be automatically rolled over into the next period – ie, from a March expiry into a June expiry, unless you opt out. There is no recommended holding period. It is down to the discretion of each individual investor to determine the most appropriate holding period, based on their own individual trading strategy and objectives.

Intended retail investor

CFDs are intended for investors who have knowledge of, or are experienced with, leveraged products. Likely investors will understand how the prices of CFDs are derived, the key concepts of margin and leverage and the fact that losses may exceed deposits in a given position. Indeed, they will understand the risk/reward profile of the 2 product compared to traditional share dealing. Investors will also have appropriate financial means and the ability to bear losses in excess of the initial amount invested in a given position.

What are the risks and what could I get in return?

Risk indicator

 

The summary risk indicator is a guide to the level of risk of this product compared to other products. It shows how likely it is that the product will lose money because of movements in the markets or because we are not able to pay you. We have classified this product as 7 out of 7, which is the highest risk class. This rates the potential losses from future performance of the product at a very high level.

CFDs are leveraged products that, due to underlying market movement, can generate losses rapidly. Losses can exceed the amount initially invested in a given position and you may be required to deposit additional funds in order to maintain your positions. There is no capital protection against market risk, credit risk or liquidity risk. It is possible to lose all of the funds on your account. Be aware of currency risk.

It is possible to buy or sell CFDs in a currency which is different to the base currency of your account. The final return you may get depends on the exchange rate between the two currencies. This risk is not considered in the indicator shown above. Market conditions may mean that your CFD trade is closed at a less favourable price, which could significantly impact how much you get back. We may close your open CFD contract if you do not maintain the minimum margin that is required, if you are in debt to the company, or if you contravene market regulations. This process may be automated. This product does not include any protection from future market performance, so you could lose some or all of your investment. If we are not able to pay you what is owed, you could lose your entire investment. However, you may benefit from a consumer protection scheme (see the section ‘what happens if we are unable to pay you’). The indicator shown above does not consider this protection.

Performance scenarios

The scenarios shown illustrate how your investment could perform, but are not an exact indicator. You can compare them with the scenarios of other products. The scenarios presented are an estimate of future performance based on evidence from the past on how the value of this investment varies. What you get will vary depending on how the market performs and how long you hold the CFD. The stress scenario shows what you might get back in extreme market circumstances, and it does not take into account the situation where we are not able to pay you. The following assumptions have been used to create the scenarios in Table 1:

Index (cash) CFD (held intraday)
Index Opening Price:
P
7000
Trade size (per CFI):
TS
10 (5 x £2 contracts)
Margin %:
M
%5
Margin Requirement (£)
MR = P X TS X M
£3,500
Notional value of the trade (£)
TN = MR/M
£70,000
Table 1
LONG Performance scenario
Closing price (inc. spread)
Price change
Profit/loss
Short Performance scenario
Closing price (inc. spread)
Price change
Profit/loss
Stress
6650
-5.0%
-£3500
Stress
7350
5.0%
-£3500
Unfavourable
6895
-1.5%
-£1050
Unfavourable
7105
1.5%
-£1050
Moderate
7035
0.5%
£350
Moderate
6965
-0.5%
£350
Favourable
7105
1.5
£1050
Favourable
6895
-1.5%
£1050

What happens if The Platforms are unable to pay out

If The Platforms are unable to meet its financial obligations to you, you may lose the value of your investment however, we believe the Firm segregates all Retail Client funds from its own money in accordance with the UK FCA’s Client Asset Rules. The Platforms also participate in the UK’s Financial Services Compensation Scheme (“FSCS”) which covers eligible investments up to £85,000 per person, per firm. See www.fscs.org.uk

What are the costs?

Trading a CFD on an underlying index incurs the following costs

The table shows the different types of cost categories and their meaning
Cash and Futures
One-off entry or exit costs
Spread
The difference between the buy price and the sell price is called the spread_ This cost is realised each time you open and close a trade.
Currency Conversion
Any cash, realised profit and losses, adjustments, fees and charges that are denominated in a currency other than the base currency of your account, will be converted to the base currency of your account_ A currency conversion fee will be charged to your account as a result.
Incidental Costs
Distributor Fee
We may from time to time after informing you, share a proportion of our spread, commissions and other account fees with other persons. including a distributor that may have introduced you
Cash Only
Ongoing costs
Daily holding cost
A fee is charged to your account for every night that your position is held. This means the longer you hold a position, the more may cost
Futures only
Other costs
Rollover costs
We charge you to roll over a futures contract into the next month or quarter, equal to the applicable spread to open and close a trade.

How long should I hold it and can I take money out early?

CFDs on options are intended for short or longer term trading, in some cases intraday and could be suitable for long term investments. There is no recommended holding period, no cancellation period and therefore no cancellation fees. You can open and close a CFD on an option at any time during market hours.

How can I complain?
If you wish to make a complaint about Clear Capital Markets, you should contact our client services team on 0203 869 6080, or email compliance@clear-cm.co.uk. If our client services team is unable to resolve the matter you may refer  it to our compliance department. If you do not feel that your complaint has been resolved satisfactorily, you are able to refer your complaint to the Financial Ombudsman Service (“FOS”). See www.financial-ombudsman.org.uk for
further information. You can also refer to the European Commission’s Online Dispute Resolution Platform, however it is likely that you will be referred to the FOS.

Other relevant information
If there is a time lag between the time you place your order and the moment it is executed, your order may not be executed at the price you expected. Ensure your internet signal strength is sufficient before trading. The Terms and Policies section of our website contains important information regarding your account. You should ensure that you are familiar with all the terms and policies that apply to your account.