Directional Trading
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INVESTOR PROFILE |
|
|---|---|
| Outlook | Negative or Positive |
| Risk Profile | Medium - High |
| Time Frame | Short |
Traders can use MQ Prime to exploit short term trading opportunities from both rising and falling share prices.
Long Positions
Traders who have a view that a share price is going to go up in value can buy shares expecting to sell them at a higher price. Buying shares is called ‘Going long’.
For example, Lisa thinks that at $25.50, BHP is undervalued and that the share price will rise in the short term. She buys 1000 BHP shares. After six weeks, BHP has climbed to $27.50 and Lisa decides to sell her shares. Lisa realises a gain on her long position of:
Gross Gain = (Sale Price less Purchase Price) multiplied by Quantity
= (27.50 – 25.50) * 1,000
= $2,000
Note that this example does not include the effects of interest, fees or taxes.
Short Positions
Traders also have the ability to take advantage of a downward move in a share price.
With MQ Prime, you can take short positions in shares, by borrowing shares from Macquarie to sell. If you expect a share to drop in value, you can to sell at the higher price, expecting to buy back at a lower price in the future. This is called 'Going short'.
For example, shortly after closing her long position, Lisa decides that at $28.00 BHP has become overvalued. She decides to take out a short position and sells 1000 BHP shares. Two weeks later the price of BHP has fallen to $27.00 and Lisa decides to buy back her position. The following gain has been realised on the short position:
GrossGain = (Sale Price less Purchase Price) multiplied by Quantity
= (28.00 – 27.00) * 1000
= $1,000
Note that this example does not include the effects of interest, fees or taxes.
Effect on profits of share price movements for long and short positions
|
Increasing Share Price |
Decreasing Share Price |
|
|---|---|---|
| Long |
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| Short |
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The Power of Gearing
Many active traders use gearing to potentially increase the returns from their trading. Gearing is where you have investment exposure that is larger than the amount of funds invested.
Gearing can allow you to take significantly larger positions than you otherwise would be able to. Gearing has the potential to increase returns but also carries a greater level of risk. This is because gearing magnifies losses, as well as gains. This risk can be managed by using a level of gearing to suit your risk profile.
The table below demonstrates the effect of gearing for a $10,000 capital outlay using a regular share trading account compared to using the MQ Prime Facility.
|
Share Trading Account |
MQ Prime Facility |
|
|---|---|---|
| Shared Purchased |
500 |
10,000 |
| Purchase Share Price |
$20.00 |
$20.00 |
| Share Price Parcel Value |
$10,000 |
$200,000 |
| Funds Deposited into Cash Account* |
|
$10,000 |
| Intial Outlay |
$10,000 |
$10,000 |
| Gearing |
0% |
95% |
|
Scenario 1: Closing Share Price of $17.50 |
||
| Share Parcel Value |
$8,750 |
$175,000 |
| Gross Profit/Loss |
-$1,250 |
-$25,000 |
| Gross Return on Initial Capital Outlay |
-12.50% |
-250.00% |
|
Scenario 2: Closing Share Price of $22.00 |
||
| Share Parcel |
$11,000 |
$220,000 |
| Gross Profit/Loss |
$1,000 |
$20,000 |
| Gross Return on Initial Capital Outlay |
10.00% |
200.00% |
These examples are calculated on a gross basis and do not include any fees, Interest or dividend adjustments. See Sections 4 and 5 of the PDS for more details of the fees and costs payable in respect of Share Positions under the MQ Prime Facility.
Due to recent rebranding of our products, we now use the term "MQ" in place of "Macquarie" in all marketing and informational material concerning our CFD, Prime and Cash Account products (except where we refer to a Macquarie company). For example, we now use "MQ CFDs" rather than "Macquarie CFDs". Please note that this rebranding has not affected the substance of the products in any way and they remain issued by Macquarie Bank Limited.
MQ Prime can be high risk and is intended for experienced investors. Consider carefully whether a MQ Prime Facility, MQ Prime Cash Account and/or a MQ CFD account, each issued by Macquarie Bank Limited ABN 46 008 583 542 are appropriate for you; talk to a financial adviser; and before investing read the relevant product disclosure statement available from www.macquarie.com.au/prime. Information is current at 5 March 2008 and may change without notice.
