Risk Disclosure Statement For CFD Trading
The objective of this Risk Disclosure Statement is to provide you, CIMB Securities’ client, with a brief outline of some of the risks associated with transacting Contracts for Difference (“CFDs”).
This Risk Disclosure Statement does not explain all the risks and other significant aspects of transacting in CFDs. Such risks can be substantial. Before entering into any CFD, you should therefore be satisfied that you fully understand the precise nature of the transaction, how it actually works, the extent of your exposure to risks and the potential losses that you could incur. This Risk Disclosure Statement also does not deal with issues of taxation or other legal consequences pertaining to any transactions which you enter into.
You should carefully consider whether any proposed transaction is suitable for you in the light of your financial resources, experience, objectives for engaging in the transaction, ability to bear risks and other relevant circumstances. You should consult such professional advisers (including legal, tax, financial and accounting) as may be appropriate.
The burden of all risks involved in any CFD will be carried by you, and we are not responsible for any losses which you incur, of whatever nature and howsoever arising.
We transact simultaneously with a large number of clients, as well as for our own account. As such, conflicts of interest cannot be completely avoided. Your attention is drawn to Clauses 11 and 30 of our General Terms and Conditions, which deal with conflicts of interest.
General Investment Risks
Listed below are some of the risks associated with CFD trading:
- Effect of ‘Leverage’: Transactions in CFD carry a high degree of
risk. The amount of initial margin is small relative to the value of the CFD transaction
so that the transaction is highly ‘leveraged’ or ‘geared’. A relatively small market
movement will have a proportionately larger impact on the funds you have deposited
or will have to deposit; this may work against you as well as for you. You may sustain
a total loss of the initial margin funds and any additional funds deposited with
the firm to maintain your position. If the market moves against your position or
margin levels are increased, you may be called upon to pay substantial additional
funds on short notice in order to maintain your position. If you fail to comply
with a request for additional funds within the specified time, your position may
be liquidated at a loss and you will be liable for any resulting deficit in your
- Risk of Inadequate Margin: Positions are marked- to- market on
a daily basis with payments being settled daily to account for market movements.
This risk of loss in securing a transaction by deposit of collateral can be significant.
You may sustain losses in excess of your cash and any other assets deposited as
collateral/margin with us. You may be called upon at short notice to make additional
margin deposits or shortfall fee payments. If the required margin deposit or shortfall
fee payment is not made within the prescribed time, you will be deemed in default
and we may liquidate your CFD positions and supporting col lateral without notice
to you. This may result in a loss for you. Such loss may be substantial. You must
therefore carefully consider whether such a collateral/margin provision arrangement
for trading in CFDs is suitable for you in light of your own financial position
and investment objectives.
You should familiarise yourself with and understand what the requirements are for trading on margin. In addition, you acknowl edge that you are fully responsible for monitoring all your positions and knowing when you will be required to place additional margin. If the required margin deposit or interest payment is not made within the prescribed time, we may close your positions without prior notification to you.
Finally, you may be called upon to deposit substantial additional margin, at short notice, to maintain your trade. If you do not provide such additional funds within the time required, your trade may be closed at a loss and you will be liable for any resulting deficit.
- Suspension or Restriction of Trading and Pricing Relationships:
Prices are subject to the risks of market fluctuations. In addition, market conditions
(e.g. illiquidity) and/or the operation of the rules of certain markets (e.g. the
suspension of trading in any underlying security) may increase the risk of loss
by making it difficult or impossible to effect transactions or liquidate/ offset
positions. For example, at times of rapid price movement if the price rises or falls
in one trading session to such an extent that trading is restricted or suspended.
- Risk-reducing orders or strategies: The placing of certain orders
(e.g. ‘stop-loss’ order, where permitted under local law, or ‘stop- limit’ orders),
which are intended to limit losses to certain amounts may not be effective because
market conditions may make it impossible to execute such orders. At times, it is
also difficult or impossible to liquidate a position without incurring substantial
losses. Strategies using combinations of positions, such as ‘spread’ and ‘straddle’
positions may be as risky as taking simple ‘long’ or ‘short’ positions.
- Transactions in Other Jurisdictions: Transactions on underlying
instrument listed in markets in other jurisdictions may expose you to additional
risk. Such markets may be subject to regulation that may offer different or diminished
investor protection. Before entering into such trades, you should be aware of the
rules relevant to the particular transactions. Our local regulatory authority may
be unable to compel the enforcement of the rules of regulatory authorities or markets
in other jurisdictions where your transactions have been effected.
- Currency Risks: Transactions in foreign markets or in foreign currency
denominated instruments tend to involve different risks from domestic markets. In
some cases, the risks will be greater. The potential for profit or loss from transactions
on foreign markets or in foreign currency denominated instruments will be affected
by fluctuations in foreign exchange rates. Any imposition by a country of exchange
controls or other limitations or restrictions may cause payments to be made in the
local currency instead of the original invested currency or may result in the inability
to effect outward remittances of funds from such country, which can affect the value
of your investment or your ability to enjoy its benefit.
- Trading Facilities and Electronic Trading: Our online trading facilities
are supported by computer-based component systems for the order-routing, execution,
matching, resignation or clearing of trades. As with all facilities and computer
systems, you will be exposed to risks associated with the systems including the
failure of hardware and software. The result of any system failure may be that your
order is either not executed according to instructions or is not executed at all.
You should also be aware that the Internet is not a completely reliable transmission
medium and there may be delays in service provisions.
- Liquidity and Market Disruption Risks: Adverse market conditions
may result in you not being able to effect CFDs, liquidate all or part of your CFDs,
assess a value or your exposure or determine a fair price, as and when you require.
The normal pricing relationships between a derivative and the underlying asset may not exist in certain circumstances. The absence of an underlying reference price may make it difficult to judge “fair” value.
- General risks of over-the-counter transactions A CFD is an over-the-counter
transaction. You should be aware of the general risks of over-the-counter transactions:
i. Because prices and characteristics of over-the-counter financial instruments are often individually negotiated, there may be no central source for obtaining prices and there can be inefficiencies and a lack of transparency in the pricing of such instruments. We make no representation or warranty that our prices will always be the best prices available to you.
ii. Over-the-counter transactions may not be regulated or subject to a separate regulatory regime, compared to on-exchange transactions.
Finally, issues such as additional cost for rollover, gapping, speculative and volatile markets, regulatory issues, cash settlement, etc
also require due attention.
Please make sure you have read and understood all information in the account opening forms, including the Terms and Conditions Applicable to Contracts for Difference and Risk Disclosure Statement for CFD Trading before commencing trading.