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A PROUD SPONSOR OF IG is a proud sponsor of The Apprentice Asia. We are the world’s number one CFD provider* serving over 140,000 clients globally. In the IG episode of the show, the candidates traded CFDs on IG’s platform. You can do the same and gain access to currencies, commodities, global shares and indices – all from the one account. The following summarises the introduction the candidates were given to trading by IG’s Chief Market Strategist, Chris Weston, and world-renowned charting expert Daryl Guppy. INTRODUCTION - THE BASICS WHAT IS A CFD? HOW DO CFDs WORK? A Contract for Difference (CFD) is a derivative that lets you trade on the change Below is an example of how to sell EUR/USD with IG: in value of a financial asset (such as a share) without the need to physically own that asset. OPENING THE POSITION • You open a short trade on the euro against the US dollar on our quote CFDs are leveraged products. You trade on margin, with only a small deposit of 1.28871/1.28879. With one contract worth €100,000, you decide to sell required to take a larger position in the market. 2 contracts at 1.28871. There are many benefits to trading CFDs: • The value of your position is €200,000 x 1.28871 = US$257,742. • Potentially profit on both rising and falling markets – with the ability to • To open the position you supply a deposit of just 0.5% of the position’s go long (buy) or short (sell) value, 0.5% x US$257,742= US$1,288 . There is no commission to pay • Trade on leverage, allowing you to invest without tying up your capital on FX trades. • Access thousands of markets worldwide, all from one account. INTEREST ADJUSTMENTS • Interest will be calculated and paid on a daily basis. For a full explanation WHICH MARKETS CAN YOU TRADE AS CFDs? on the interest rate calculations please refer to rates section of the website. CLOSING THE POSITION IG offers an extensive range of markets: • One week later, EUR/USD has fallen to 1.27731/1.27739, and you take • Over 80 FX pairs, including EUR/USD and USD/JPY your profit by buying 2 contracts at 1.27739. Your gross profit on the trade is calculated as follows: • Commodities, like spot gold and light crude oil • 24-hour stock indices, including Hong Kong HS42 and Wall Street, PROFIT ON TRADE so you can trade even when the underlying market is closed Opening level €200,000 (2 contracts) x 1.28871 = US$257,742 • US, Hong Kong and Singapore stocks, plus thousands of other global shares, binaries, options, interest rates, bonds and more. Closing level €200,000 (2 contracts) x 1.27739 = US$255,478 Gross profit on trade: US$2,264 WHAT ARE THE COSTS? • To calculate the net result you also have to include interest adjustments. IG’s trading costs are competitive. There’s either a commission charge for For more information, see the Contract Details sections for each market trading share CFDs or a spread charge (difference between a buy and sell on our website. price) for other products: • Of course, had the market moved in the opposite direction, you would • Trade EUR/USD from a low 0.8 pips and share CFDs from 0.1% commission. have made a loss that may have exceeded your initial deposit . View the complete list of costs in the rates section of our website. The Apprentice Asia, June 2013 IG Markets Limited is incorporated in England. ABN 84 099 019 851. Australian Financial Services Licence No. 220440. Authorised Futures Dealer in New Zealand, Company No. 2249573. Page 1 of 6 HOW TO MAKE TRADING DECISIONS The two common methods traders use to analyse and make decisions about financial markets are fundamental and technical analysis. On The Apprentice Asia Chris Weston taught contestants how to identify trading opportunities using fundamental analysis, whilst Daryl Guppy taught them technical analysis. FUNDAMENTAL ANALYSIS CHRIS WESTON, IG CHIEF MARKET STRATEGIST Chris has worked for a number of investment banks and is an established figure in the media, discussing global markets, FX and commodities on a range of television and radio channels, including CNBC, Bloomberg and Sky News Business. HOW TO USE FUNDAMENTAL ANALYSIS • Fundamental analysis is used to determine the underlying value of an asset and discover factors that drive price action. • When trading shares, fundamental analysts focus on aspects such as the balance sheet, income and cash flow statements. • With other asset classes, such as currencies and commodities, the metrics differ. • Currencies are generally valued based on the robustness of the underlying economy the currency represents. • As a result, factors such as the interest rate, GDP, trade balance, jobs figures, CPI and manufacturing data all play a big role in determining the value of the currency. • Supply and demand factors for commodities are generally determined ■ While most economists expected the interest rate to remain on by economic robustness/growth forecasts. hold at 3%, the RBA cut rates by 0.25% to 2.75%. • Economists and analysts come up with forecasts for these various factors, ■ The result saw a sharp drop in the AUD as traders responded to the which are generally updated monthly/quarterly. revaluation of the currency from a yield perspective, and revised • With a forecast value in place, any major variation from this forecast/ forecasts for future rate expectations. estimate would then result in the currency moving. ■ This chart shows the sharp move on the back of the announcement. An example of this can be seen in the chart on the right, showing how FX pairs can be affected when a central bank issues an interest rate setting that is Traditionally trying to trade currencies purely on fundamentals is tough, as the not in line with forecasts, which happened with the Reserve Bank of Australia’s market is forward-looking and tries to price in news events well before they May 2013 cash rate decision. have occurred. This is why it is wise to use a blend of both fundamentals and price action (technicals). The stock market is also forward-looking, however rather than looking at inflation and the perception of future monetary policy, equities are driven by the perception of future cash flow and earnings. STOCK FUNDAMENTALS Stock fundamentals are all about trying to bring the nuts and bolts of PRICE-TO-BOOK RATIO a company’s financial situation together to determine what it is worth, The second metric to look at is price-to-book (PB) or price-equity ratio. whether it is cheap or expensive, and whether the return you get from This is the current share price dividend by the total assets, minus intangible your investment is compelling. assets and liabilities from the last quarter. It looks at the total value of the So traditionally, what are the common fundamental metrics used to do this? assets the company owns, versus the share price. A low price-to-book ratio could suggest the company is cheap and that the market is undervaluing the PRICE-TO-EARNINGS RATIO current situation. However, it may also mean there are structural issues with The first (and most common) valuation metric is price-to-earnings (P/E). This is the company’s assets, and it could see write-downs justifying the figure. the ratio between the current share price divided by the current earnings per RETURN-ON-EQUITY share. The higher the P/E, the greater the expected earnings are in the future. The other way of looking at a high P/E ratio is that the share price has pushed Return-on-equity (ROE) is the net income (in percentage terms) returned to past fair value, and that current earnings are not supportive of the higher shareholders. It illustrates how much profit the company makes with the capital share price. It is also important for investors to understand the limitations of shareholders invested in the company. It is calculated by dividing the net P/Es; they don’t account for the underlying assets of the company or the fact income for the full fiscal year by the equity held by the shareholder. The higher that earnings could be under pressure from capital expansion or a seasonal the percentage, the better the returns. Again, this considers just one part of downturn. Therefore, it should not be viewed on its own. the business, and it tends not to be forward-looking. In theory, equity markets are forward-looking, so it may not give the full picture as to the outlook of the company. Profit can be lost quickly if assets and earnings are under pressure. The Apprentice Asia, June 2013 IG Markets Limited is incorporated in England. ABN 84 099 019 851. Australian Financial Services Licence No. 220440. Authorised Futures Dealer in New Zealand, Company No. 2249573. Page 2 of 6 TECHNICAL ANALYSIS DARYL GUPPY FOUNDER AND Director OF GUPPYTRADERS.COM Daryl Guppy, otherwise known as CNBC’s “Chart Man” is the founder and Director of Guppytraders.com and a much sought-after speaker in Asia, Europe and Australia. As an active trader in equities and derivatives, Daryl is recognised globally for the quality of his analysis and has a weekly column on www.cnbc.com. He is also the author of many successful trading books and contributes to several other financial publications around the world, including Your Trading Edge, China Daily and Active Trader. He accurately predicted the Asian Financial Crisis and the Global Financial Crisis. UNDERSTANDING CHARTS • Charts are used to understand market behaviour and identify trading opportunities.

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