Risk management
Manage your risk and protect your shares
Guaranteed Stop-Loss Orders (GSLs)
Protect your shares with GSL Orders
Macquarie's unique GSL protection shields you against unexpected adverse share price movements. A GSL guarantees an agreed worst case exit price for a share position.
GSL orders can be used with both shares and CFDs and are an effective way to minimise the downside risk of investing. Using GSLs protects your positions by guaranteeing a worst case exit price while allowing you to benefit from increases in the share price.
Over which shares are GSLs offered?
Guaranteed Protection
May be set as close as 1% from the current share price
Amendable at potentially no extra cost
Reduce your maximum loss to as little as 1%
Can be placed online with a new order or added to an existing share position
How GSLs work
A GSL will be triggered if you have a Long Position and the share trades at or below the GSL level or if you have a Short Position and the share trades at or above the GSL level any time during the normal trading hours on the ASX, up until the expiry of that GSL. In the example scenario below the chart demonstrates the difference when GSL protection is used in relation to a Long Position and a share price suddenly falls.
Example scenario
The example illustrates
- a holding of XYZ shares with a value of $200,000
- compares one scenario with a GSL at $19.80
- to another scenario where no GSL is used
If the XYZ share price suddenly drops to $18.00 the GSL would be triggered.
You can see that with the GSL on a net basis the position is closed at $19.80, the GSL level; however the position without a GSL would be valued at the market price, in this case $18.00.
In this example, the loss on the position is dramatically reduced by using the GSL.
This example is illustrative only. It does not account for taxation or fees and other costs.
Trading strategy
Amending GSLs
Once you have a GSL on a position, generally, you can amend the protection level if the share is open for trading on the ASX. You can amend a GSL, generally, for no additional cost provided you do not move the GSL Level closer in percentage terms to the relevant share's price than when you first purchased that GSL and do no extend the expiry. This allows you to effectively "trail" the GSL.
Hedging with CFDs
Protecting Share Positions with CFDs
Using your Macquarie Prime Facility you can trade shares and Macquarie CFDs side by side. This means you can use CFDs to hedge your share positions:
- Potentially without the need for additional margin deposits
- With profits and losses settling into your Prime Cash Account in real time
Using a CFD to hedge an existing long share position is easily achieved by entering into an equal and opposite CFD position. The CFD position will neutralise your risk by giving you an opposing exposure to the same underlying share.^
CFDs are an effective hedging tool as you can:
- Hedge an exact quantity of shares
- Have the hedge in place for a timeframe of your choice
- Earn interest on the face value of the CFD position
Share prices move both up and down. Investors who hold profitable share portfolios can be faced with the dilemma of when to realise their profits. Often an investor will hold a positive long-term view on a share in their portfolio but may think that, in the short term, the share price will remain flat or even fall. If faced with this situation, you may not want to sell as it may trigger a capital gains tax event.
Macquarie CFDs are a simple and cost effective way for you to protect the shares you hold in your Prime Facility against a downward movement in price.
A long position profits when a share price moves up and a short position profits when the share price moves down. If you have an equal quantity of long and short positions in the same share in Prime it doesn't matter what the price does - no profit or loss will be generated. You are said to be "hedged" against future share price movements.
Strategy Details
This strategy involves entering an equal and opposite CFD position to your shareholding, for example, if you hold 539 shares you would open a short CFD position over 539 shares.
The CFD position will neutralise your equity risk by giving you an equal but opposite exposure to the same underlying share.
The benefits of using CFDs to hedge include:
Integration
Short CFD positions earn interest
CFDs have no set expiry date
CFDs have no minimum parcel size or strike price
Flexible Gearing Levels
Macquarie Prime is a flexible facility that lets you vary your gearing level anywhere between 0 and 95%*. As a minimum you meet the margin requirements for any shares purchased using the loan facility, however by depositing additional funds into your Prime Account you can effectively reduce your gearing level. The gearing derived from borrowing to invest in shares is determined by the ratio of your Funds Balance (which included margin and available cash) to the value of your long share positions.
For example, the following table illustrates levels of gearing on a $100,000 share investment with different Funds Balances.
| Share Value | Required Margin | Available Funds | Funds Balance | Effective Gearing Ratio |
|---|---|---|---|---|
| $100,000 | $10,000 | $90,000 | - | 0% |
| $100,000 | $10,000 | $40,000 | - $50,000 | 50% |
| $100,000 | $10,000 | $15,000 | - $75,000 | 75% |
| $100,000 | $10,000 | $5,000 | - $85,000 | 85% |
| $100,000 | $10,000 | $0 | - $90,000 | 90% |
The above table does not account for any CFD positions the investor may have. These may increase an investor's effective gearing ratio.
Gearing gives you the potential to increase the size of your returns by increasing the size of your investments.
The greater the level of gearing, the greater the potential returns but this also increases your risk because gearing will magnify any losses.
Variable gearing enables you to choose your own gearing risk levels. You should read Section 8 of the Macquarie Prime Account Product Disclosure Statement (PDS) for more information on the risks of gearing.
