Trading Point of Financial Instruments Ltd (‘Trading Point’, ‘we’ or ‘us’) Significant Risks of trading in Contracts for Difference (‘CFDs’) and Foreign Exchange (‘Forex’). This notice is provided to you in accordance with the Markets in Financial Instrument Directive (MiFID) of the European Union, because you are proposing to undertake dealings in Contracts for Difference (CFDs) and Foreign Exchange (‘Forex’).
Trading in CFDs and Forex carries with it a very high risk. These products should be regarded as highly speculative instruments. You should not engage in CFDs or Forex unless you understand the nature of the particular transaction you are entering into and the true extent of your exposure to risk of loss. The amount you may gain or lose will vary according to the extent of the fluctuations in the price of the Underlying Instrument to which your trade relates. You may lose the Initial Margin Requirement invested in respect of a particular trade.
This document outlines the significant risks that you must be aware of and understand before making any decision to invest in CFDs and Forex. It does not purport to indicate all risks associated with CFDs, Spread Betting and Forex as this will depend on your personal financial circumstances, but highlights significant risks which we believe are important. For many members of the public, these transactions are not suitable, therefore, please ensure that you fully understand the risks involved and seek independent advice if necessary prior to entering into such transactions.
Gearing or leverage is a particular feature of CFDs and Forex. The risk arises from the margining system applicable to such trades which generally involves a comparatively modest deposit of a margin as a proportion of the total consideration. A relatively small movement in the Underlying Instrument or currency pair can have a substantial effect on your trade. An adverse movement can quickly result in the loss of your entire Initial Margin Requirement.
You should also be aware that leverage risk can be amplified through the use of a credit facility or any form of borrowing to fund your CFD trading, particularly credit cards.
The Initial Margin Requirement is the amount that is required to be deposited with us in order to open a CFD or Forex position and represents a percentage of the contract value. If the market moves against you and your account moves into deficit, you may be required to pay additional funds into your account if you do not wish to have your positions closed out. The amount of additional funds will be the Initial Margin Requirement plus any net equity less cash and collateral held. If your account moves into deficit you have two options. You can either reduce your position in order to reduce your Initial Margin Requirement or deposit additional funds into your account in order to increase the equity amount. If you do not adopt one of these options, your trade may be compulsory closed at a loss and you may lose our entire Initial Margin Requirement. We may close out your position if you are in default of your account. Trading Point may offer you a credit allocation which may amongst other payments cover the initial margin requirements. The extent of your agreed credit allocations facility does not limit your loss or financial liability. You can be subject to margin calls for an amount in excess of your credit allocation. The amount of capital which you are prepared to place at risk should be sufficient to cover your credit allocation and the possibility of further margin calls may arise.
Gapping Through and Restrictions on Stop Loss or Limit Orders
Stop-loss Orders and Limit Orders are only available on selected instruments and we are entitled to refuse to accept any Stop-loss Orders or Limit Orders on any instrument. Stop-loss Orders are nonguaranteed unless at the time of placing the order it is expressly guaranteed by us. Non-guaranteed orders are vulnerable to Gapping Through. Gapping Through occurs when the market moves rapidly to a price which is worse for you than at the level a Stop Loss order has been placed. This will usually result in your order being filled at a price worse than the price specified in the order.
Over-the-counter (OTC) transactions
CFDs and Forex are ‘over the counter’ transactions. This means these transactions are not undertaken on any approved financial market such as a stock exchange or futures exchange. All positions entered into with us must be closed with us and cannot be closed with any other entity. OTC transactions may involve greater risk than investing in on-exchange contracts because there is no exchange market on which to close out an open position. It may be impossible to liquidate an existing position, to assess the value of the position arising from an OTC transaction or to assess the exposure to risk. Bid Prices and Ask Prices need not be quoted by us, based on best execution policies applicable in the market. This also means that you may be exposed to the risk of our default.
A Financial Instrument on foreign markets may entail risks different to the usual risks of the markets in the Client’s country of residence. In some cases, these risks may be greater. The prospect of profit or loss from transactions on foreign markets is also affected by exchange rate fluctuations.
Buy/Sell Spread Risk
Your position may be subject to market volatility risk and prices may change while your position is open. The opening and closing price of a CFD or Forex contract quoted to you will be derived from the price in the Underlying market for that instrument subject to your proposed trade being at or below the normal market size for that instrument. The size of the difference between our ‘buy’ and ‘sell’ prices may change while your CDF or Forex contract position is open to reflect changing market conditions. It may, therefore, be the case there is a wider difference between the ‘buy’ and ‘sell’ prices your are quoted when closing a CDF or Forex contract that when it was opened.
Under certain trading conditions it may be difficult or impossible to execute a trade (for example, trading in the Underlying Instrument is restricted or suspended for whatever reason or the trade is above the normal market size). There may be also circumstances when the prices of our CDF or Forex will need to be requoted.
The depth of the market in which your CFDs or Forex are traded may limit your ability to close out your CFDs or Forex. Where a stock is tightly held by market participants the market in the Underlying Instrument is ‘illiquid’. If this is the case it may be difficult for you to close your position with us at the time or price that you want. Should you open a substantial CFD or Forex position in an illiquid market, a corresponding hedging transaction that we may have entered into, may be above the normal market size for the instrument in question and represent a large transaction. In an illiquid market, it may take us hours, days or even weeks to properly hedge against your CFD position. During these illiquid times you may not be able to close out your CFD position and it is possible that the price of the CFD could move against you.
Charges and Commissions
Please be aware of all charges and commissions that apply to you, because this may affect your profit margin.
The Client should take the risk that his 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. The Company does not warrant that no tax and/or any other stamp duty will be payable. The Client should be responsible for any taxes and/or any other duty which may accrue in respect of his trades.
We are not permitted to and do not provide investment advice relating to investments or possible transactions in investments. We are permitted to provide factual market information and information about transaction procedures, potential risks involved and how those risks may be minimised, but, any decisions made must be yours.