When we talk about trading, we most often refer to spot trading. But sometimes it is possible to defer the payment until later, thus avoiding having to shell out anything. This is referred to as SRD trading or Deferred Settlement Service. How exactly does the SRD work, and what are the benefits? Let’s take a look at this way of trading together so that you can adopt it easily.
What is SRD?
The Deferred Settlement Service is a device that allows the investor to postpone the receipt or payment of securities until the end of the stock market month. The investor can then sell (this is called a short position) or buy (long position) without having to pay a fund for a month. It is the financial intermediary, often a bank, which finances the position of the investor. In return, the investor must provide guarantees and pay a commission to the bank, this is called hedging. At the end of the trading month, if the investor’s position is winning, they can cash out. If it loses, he will be the debtor and will have to pay the difference between the purchase price and the sale price.
You should know that not all values can be used in SRD. If they are, they are divided into two distinct SRDs categories:
- SRD long and short: these are the values that can be bought and sold. They have two criteria: their minimum volume of capital traded per day is 1 million euros, and their market capitalization equivalent to 1 billion euros;
- Long SRD only: These are values that can be purchased only. Their only criterion is the minimum daily capital volume of 100,000 €.
The advantages of SRD
The primary advantage of SRD trading, unlike spot trading, is the ability to sell short. You agree to sell one or more titles at a defined price by betting on the fact that the price will have fallen on the day of delivery. If you’ve got it right, you pocket the difference, without having paid in advance, between the price when you sold to the SRD and the price at the time of delivery (or the day of the redemption).
The other asset of the SRD is the leverage effect. It increases the purchasing capacity of the investor with a coefficient calculation. These coefficients are applied to the Cash and Securities positions of the portfolio at the time of investment. Be careful, all the same, a bad investment can make you lose an amount greater than the invested capital.
You will also appreciate the large choice of securities eligible for SRD since there are more than 220 eligible stocks and 300 ETFs, all on a regulated market, since orders are made on NYSE Euronext, a centralized market that is most reliable. Finally, consider the absence of taxes on financial transactions related to DTH, which will delight some of you for sure!
Read also : The different types of shares on the French stock market.