Risk Warning Notice for Contracts for Difference ( CFDs ) and Spot Foreign Exchange ( Forex )

Transcription

1 Risk Warning Notice for Contracts for Difference ( CFDs ) and Spot Foreign Exchange ( Forex ) 1. INTRODUCTION 1.1. TradingForex.com is a domain owned and operated by TTCM Traders Trust Capital Markets Limited, a Cyprus Investment Firm regulated by the Cyprus Securities and Exchange Commission (CySEC) under license number 107/09 (the Company ) The Company is operating under Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments amending Council Directives 85/611/EEC and 93/6/EEC and Directive 2000/12/EC of the European Parliament and of the Council and repealing Council Directive 93/22/EEC, as the same may be in force from time to time and modified or amended from time to time (the Markets in Financial Instruments Directive (2004/39/EC) or MiFID ), which was implemented in Cyprus by the Investment Services and Activities and Regulated Markets Law of 2007 (Law 144(I)/2007 of 26 October 2007) and Cyprus Law 106(I)/2009 of 23 October 2009, which provide for the provision of Investment Services, the exercise of Investment Activities, the operation of Regulated Markets and other related matters (the Investment Services and Activities and Regulated Markets Law ), as the same may be modified and amended from time to time This notice is provided to you in accordance with MiFID because you are considering dealing with the Company in certain derivative financial instruments provided by the Company ( Financial Instruments ) This notice cannot and does not disclose or explain all of the risks and other significant aspects involved in dealing in Financial Instruments and is designed to explain in general terms the nature of the risks particular to dealing in the Financial Instruments provided by the Company and to help you to take investment decisions on an informed basis. This notice should be read together with the General Risk Disclosure. 1

2 1.5. In order to comply with MiFID, the Company will classify prospective clients either as Retail Clients, Professional Clients or Eligible Counterparties when considering their application for opening an account, based on the information provided to the Company as part of the account opening procedures Prior to applying for an account, you should consider carefully whether trading in derivative Financial Instruments is suitable for you in the light of your personal circumstances and financial resources. Trading in derivative Financial Instruments entails the use of gearing or leverage. In considering whether to engage in this form of trading, you should be aware of the following: 2. CONTRACTS FOR DIFFERENCES (CFDS) AND SPOT FOREIGN EXCHANGE (SPOT FOREX) 2.1. A CFD - or Contract for Difference - is an agreement between two parties to exchange the difference between the purchase and sale price of a financial instrument or security. The product allows you to take a view on the future increases or decreases in the value of a specific asset, for instance, commodities, spot metals, indices and/or currencies. If your view proves to be correct, you will make a profit from the difference in value (less costs). If the view you took turns out to be wrong, you will have to pay the difference in value (plus costs). Being tied to an underlying asset, the value of a CFD depends on that underlying asset. CFDs are always margin traded (see the below paragraphs on foreign exchange transactions). However, the price always moves with the price of the underlying asset, which may be traded on a regulated market. The price and liquidity of CFDs mirror the price and liquidity of the underlying asset on the market in which the underlying asset is admitted for trading, whereas CFDs themselves are over-the counter (OTC) products with a price fixed on the basis of the price and liquidity of the underlying asset, the futures market, estimated future dividends, the effects of interest rates, etc Please note that as CFDs are margin traded, it allows you to take a larger position than you would otherwise be able to on the basis of the funds you have deposited by way of margin with the Company. As such, a relatively small negative or positive movement in the underlying instrument can have a significant effect on your investment. CFD trading therefore involves a relatively high level of risk. This makes the potential gain quite high, even if the deposit is relatively small. If your total exposure on margin trades exceeds your deposit, however, you risk losing more than your deposit. Please also note that for margin trades, the Company reserves the right to amend the margin requirements at any time and you will be required to either top up funds or reduce positions (which 2

3 may be at a loss) in such an instance, to avoid being forced closed out automatically by the trading platform When trading Spot Foreign Exchange (Forex), the investor takes a view on the development of the price of one currency relative to another, where one is sold and the other is purchased. By way of example, an investor may sell British pounds (GBP) against the US dollar (USD) if he expects that the USD will increase relative to the GBP Forex is traded as a leveraged product, which means that for a small outlay, you can open and trade larger positions in the market. Forex Spot is the purchase of one currency against the sale of another for immediate delivery The currency exchange market is the world's largest financial market with 24 hour trading on working days. It is characterised, among other things, by a relatively low profit margin compared to other products. A high profit is therefore subject to a large trading volume, which is achieved for instance by margin trading as described above. When trading in Forex, a gain realised by one market player will always be offset by another player's loss Please note that as Forex is margin traded, it allows you to take a larger position than you would otherwise be able on the basis of the funds you have deposited by way of margin with the Company. As such, a relatively small negative or positive market movement can have a significant effect on your investment. Forex trading therefore involves a relatively high level of risk. This makes the potential gain quite high, even if the deposit is relatively small. If your total exposure on margin trades exceeds your deposit, you risk losing more than your deposit. Please also note that for margin trades, the Company reserves the right to amend the margin requirements at any time and you will be required to either top up funds or reduce positions (which may be at a loss) in such an instance, to avoid being forced closed out automatically by the trading platform. 3. RISKS ASSOCIATED WITH TRANSACTIONS IN DERIVATIVE FINANCIAL INSTRUMENTS 3.1. You unreservedly acknowledge and accept that, regardless of any information, which may be offered by the Company, the value of the Financial Instruments provided by the Company may fluctuate downwards or upwards and it is not unlikely that the investment may become of no value. 3

4 3.2. Trading in Financial Instruments and other leveraged products may involve a significant level of risk and is not suitable for all investors. Before undertaking any such transactions you should ensure that you fully understand the risks involved and you should seek independent advice if necessary. You should not engage in any dealings in Financial Instruments, directly or indirectly, unless you know and understand all of the risks involved You unreservedly acknowledge and accept that you run a great risk of incurring losses and damages as a result of your dealing in Financial Instruments and you accept and declare that you are willing to undertake such risks The high degree of gearing or leverage is a particular feature of derivative Financial Instruments. This stems from the margining system applicable to such trades, which generally involves a comparatively modest deposit or margin in terms of the overall contract value, so that a relatively small movement in the underlying market can have a disproportionately dramatic effect on your trades The Financial Instruments available for trading with the Company are non-delivery spot transactions giving an opportunity to make profit on changes in certain currency rates, commodity prices, stock market indices or share prices, called the underlying instrument ( Underlying Instrument(s) ), whereby is up to the Company s sole discretion to decide which types of Financial Instruments to make available and to publish the prices at which these can be traded. If the movement in the price of the Underlying Instrument is in your favour, you may achieve a good profit, but an equally small adverse market movement can not only quickly result in the loss of your entire margin deposit, but also of any additional commissions and other expenses incurred. 4. VOLATILITY OF PRICE AND LIMITATION ON THE AVAILABLE MARKET 4.1. The Financial Instruments provided by the Company are derivative securities, the price of which is derived from the price of the Underlying Instruments, to which the Financial Instruments refer. Derivative securities/markets can be highly volatile The prices of derivative Financial Instruments and the Underlying Instruments and indices may fluctuate rapidly and over wide ranges and may reflect unforeseeable events or changes in conditions, none of which can be controlled by you or by the Company. Under certain market conditions, it may be impossible to execute any type of order at the declared price. Therefore, even stop-loss orders, 4

5 whereby your trade will be executed only when the Financial Instrument you want to buy or sell reaches a particular price (the stop price ), cannot guarantee the limit of loss. Stop-loss orders are not guaranteed to be filled at the price you state. Once the stop-loss order has been triggered, it turns into a market order, which is filled at the best possible price. This price may be lower than the price specified by the stop-loss orders The prices of derivative Financial Instruments will be influenced by, amongst other things, changing supply and demand relationships, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and the prevailing psychological characteristics of the relevant marketplace Transactions in the derivative Financial Instruments provided by the Company are not undertaken on a recognized exchange, rather they are undertaken through the Company s Electronic Trading Platform and, accordingly, they may expose you to greater risks than regulated exchange transactions. The terms and conditions and trading rules are established solely by the counterparty, which in this case is the Company. You may be obliged to close an open position of any given Financial Instrument during the opening hours of the Company s Electronic Trading Platform. 5. OTHER ADDITIONAL OBLIGATIONS 5.1. Before you begin to trade, you should obtain details of all commissions and other charges for which you will be liable and which may be found on the Company s Website(s). If any charges are not expressed in money terms (but, for instance, as a dealing spread), you should obtain a clear written explanation, including appropriate examples, to establish what such charges are likely to mean in specific money terms The value of open positions in the Financial Instruments provided by the Company is subject to financing fees. The price of long positions in Financial Instruments is reduced by a daily financing fee throughout the life of the contract. Conversely, the price of short positions in Financial Instruments is increased by a daily financing fee throughout its life. Financing fees are based on prevailing market interest rates, which may vary over time. Details of daily financing fees applied are available on the Company s Website(s) You should be aware that your trades in Financial Instruments may be or become subject to tax and/or any other duty for example because of changes in legislation or his personal circumstances. 5

6 The Company does not warrant that no tax and/or any other stamp duty will be payable. You will be responsible for any taxes and/or any other duties which may accrue in respect of your trades. 6. MARGIN REQUIREMENTS 6.1. You will be required to deposit Margin with the Company in order to open a position. The Margin requirement will depend on the underlying instrument of the derivative Financial Instrument, level of leverage chosen and the value of position to be established. The Company will not notify you of any Margin Call to sustain a loss making position The Company has the discretionary right (a) to start closing positions when Margin Level decreases to about 50% of the required Margin Level for any particular Financial Instrument, and (b) to close automatically all positions at market prices, if Margin Level drops below 30% of the required Margin Level for any particular Financial Instrument. The Company guarantees that there will be no negative balance in the account when trading Financial Instruments provided by the Company The Company reserves the right to review and/or amend its Risk Disclosure statements, at its sole discretion, whenever it deems fit or appropriate Our Risk Disclosure statements are not part of our Terms and Conditions of Business and are not intended to be contractually binding or impose or seek to impose any obligations on us which we would not otherwise have, but for the Cyprus Investment Services and Activities and Regulated Markets Law of 2007 (Law 144(I)/2007) Should you have a question about the Risk Disclosures set forth herein please direct your questions to our Compliance Department: [email protected]. 6