This notice provides you with information about the risks associated with investment products, which you may invest in through services provided to you by EMD Financials LLC . EMD Financials LLC provides a wide range of investment services in relation to a number of products.
This notice does not explain all of the risks involved in investment products or how such risks relate to your personal circumstances. It is important that you fully understand the risks involved before making a decision to trade FX, CFD’s or Spread Betting.
If you are in any doubt about the risks involved with your Account, you should seek professional advice.
02. Investment Products
Foreign Exchange (‘FX’), Contracts for Difference (‘CFDs’) and Spread Betting with EMD Financials LLC are all margin traded products. Therefore, they inherently carry a high level of risk compared to other investments and as such you could lose more than your initial investment. They are all legally enforceable under the Financial Services and Markets Act 2000.
The ‘spread’ in spread betting represents the difference between ask price and bid price. If the markets move the way you bet, your profit will rise. Similarly, if the markets move the opposite way you bet, you will incur losses.
03. Nature of CFDs
CFD, or Contracts For Difference, is a type of financial contract in the derivatives market in which two different entities (trader and broker) enter into an agreement to exchange the differences in the price of an underlying financial asset between its opening and closing prices.
It is important that you understand the characteristics associated with CFD trading:
- Trading CFDs is highly speculative, involves a significant risk of loss and is not suitable for all investors but only for those customers who:
a) understand and are willing to assume the economic, legal and other risks involved;
b) are experienced and knowledgeable about trading in derivatives and in
underlying asset types; and
c) are financially able to assume losses significantly in excess of margin or deposits because
investors may lose the total value of the contract not just the margin or the deposit.
- CFD trading also carries a high level of risk compared to other kinds of investments, and prices could move rapidly. Therefore, only part of your overall investment portfolio should be invested in CFDs as you could lose more than your initial investment.
- CFDs provide higher leverage than traditional trading. With CFDs, you only have to put in a fraction of the market value of the underlying asset when making a trade, sometimes as little as 1%.
- Financial markets may fluctuate rapidly to reflect events that are outside the control of the Firm and/or your control; as a result, prices will become volatile. One form of price volatility is ‘gapping’, which occurs when there is a sudden shift in prices from one level to another. This can be caused, for example by unexpected economic events or market announcements, within or outside trading hours. Consequently, EMD Financials LLC may be unable to execute your instructions at the requested price. In addition, if prices move against you, this will have a direct and real time impact on your trades.
- CFD is not suitable for buy-and-hold trading or long-term positions.
- CFDs do not have an expiry date like options or futures contracts.
- A CFD can only be closed by making a second, ‘reverse’ trade.
Margin trading is leveraged trading that allows ‘gearing’ which means that you can place a large trade or bet by only putting up a small amount of money as margin. If the price moves in your favor you can greatly increase your profits. However, even a small movement in price against you can lead to substantial losses and you may be required to deposit additional margin with us immediately to keep these trades open. You are liable for this and for any losses that may occur if your positions are closed. The potential losses, or profits, for margin traded products are, or could be, unlimited and this should always be
considered by you when making trading decisions
Margined trades (or bets in the case of spread betting) are trades on the price movement of a product. They settle based on the difference between the opening price and the closing price of the trade or bet. They can settle in a currency other than your base currency and therefore your profit or loss could be liable to foreign exchange fluctuations.
You should not trade any margined product unless you fully understand all the risks involved with doing so and that you have sufficient resources available to you that in the event, however unlikely you may deem it to be, that there is an adverse movement in the price of that product that you can meet the financial obligations required by you with respect to margin payments and losses.
Margin trading is not necessarily designed to replace existing or traditional methods of investing and is therefore not suited to everyone.
All clients margin are set to 50 percent. We will be closing all clients out at 50 percent including professional clients. This requirement is based on one or more open CFD positions and the rule is based on an account level basis as opposed to per position. The client may in certain conditions surpass this close-out rule.
If the market was to gap, we would not need to credit the client back to the 50 percent close-out level. Our sole obligation is to ensure that the client does not incur a negative balance (see Negative Balance Protection below).
The margin close-out rule is imposed on a per account basis (rather than a per position basis). We can close one or more of a client’s open CFD positions on terms most favourable to the client accordingly. When the sum of funds in the CFD trading account and the unrealised net profits of all open CFDs connected to that account falls to less than half of the total initial margin protection for all those open CFD, the client would be closed out.
05. Market Risks
It is important that you understand that trading financial instruments on different markets has its own inherent risk. Some of such risks include currency, volatility and liquidity.
Currency risk arises from the change in price of one currency in relation to another. This may impact the profit and loss of the transaction. Currency risk can be reduced by hedging, which offsets currency fluctuations.
Volatility refers to the amount of uncertainty or risk involved with the size of changes in a currency exchange rate. High volatility means that the price of the currency can change dramatically over a short time period in either direction.
Liquidity risk is the risk originating from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss. Liquidity can impact the price, spreads and sizes that your order is executed.
06. Leverage Trading
With leverage trading of derivative products, a relatively small price movement in the underlying asset may result in proportionately larger profits or losses. If the market moves against your position(s) and/or the margin requirements are increased, you may be required to deposit additional funds at short notice in order to maintain your open margined position(s). If you do not provide additional funds or other acceptable collateral to satisfy the margin requirements, we are entitled to close your open margined
position(s). Consequently, you shall be liable for any losses or deficit on the account as the result of the close-out.
07. No Investment Advice
We do not provide investment advice in relation to our products or services as well as regulatory, tax or legal advice. You are responsible for managing your tax and legal affairs including making any regulatory filings and payments and complying with applicable laws and regulations. If you are in any doubt as to the tax treatment or liabilities of investment products available through any of your Accounts, you may wish to seek independent advice.
08. Monitoring Positions
It is important that you monitor all of your positions closely. It is your responsibility to monitor your positions and during the period that you have any open Contracts or are holding any Instruments, you should always have the ability to access your Accounts.
09. Swap Rates
You may be subject to overnight financing if you leave your positions open past 10 pm UK time (however this can change with daylight savings adjustments).
10. Trade Restrictions
Not all trades (or bets) can be opened or closed 24 hours a day. Many are subject to strict opening and closing times which can fluctuate. These are posted on our Market Information Sheets (MIS) which are available online and which we endeavour to keep up to date, without any obligation or liability on us to do so, or for its accuracy. For example national holidays and Daylight savings changes will affect the times when you can trade. Also, a market may be suspended for a variety of reasons and during this time you will not usually be able to trade.
11. Electronic Communications
Although electronic communication is often a good way to communicate, it may also fail, can be delayed, may not be secure and/or may not reach the intended point of destination.
12. Suspensions of Trading
Under certain trading conditions it may be difficult or impossible to liquidate a position. This may occur, for example at times of rapid price movement if the price for the underlying rises or falls in one trading session to such an extent that trading in the underlying is restricted or suspended.
13. Customer Funds
If you are categorised as a retail client, any money that we hold on your behalf will be kept in one or more segregated accounts with an institution within or outside the European Economic Area (‘EEA’), separated from the Firm’s money. However, even in a segregated account you may not be afforded complete protection. All individual client funds are subject to the Client Money Rules of
the FCA, unless stated otherwise, and are guaranteed by them under the Financial Services Compensation Scheme up to a maximum of £50,000. (See Deposits / Withdrawals / Balances).
14. Trade Prices
You are placing trades (or bets) on our prices and not those on an exchange. Depending on the market, our prices will usually be based on an exchange price but can fluctuate away from the underlying prices due to a variety of reasons. All open trades can only be closed and settled with us.
15. Technical Risks
We aim to generate prices continuously and provide you with access to our trading platforms throughout the trading sessions. However, there are instances where this is not possible (e.g. due to poor internet connectivity, system errors and outages, etc.). This may cause prices to change between the time an order is placed and the time the order has been received by the Firm. In addition, these technical risks may significantly impact the execution of your orders.