Risk Warning
Contracts for Difference are classed as derivatives.
This notice is provided by Prime Markets Limited, which is authorised and regulated by the Financial Services Authority. It is intended to ensure that you consider the risks, and other significant aspects, of financial products traded on margin such as Contracts for Difference, Futures, Options, and Spreadbets – collectively referred to as CFDs below. You should not deal in financial products traded on margin unless you understand the nature of the contracts you are entering into and the extent of your exposure to risk.
1. Objectives and Risks
CFDs are trading products that use leverage. Leverage magnifies movements in the underlying asset (equity, commodities, FX etc). This means that whilst profits are magnified so are losses. One of the main objectives when trading CFDs is to achieve short term speculative gains in a particular asset, although as a versatile product they can be used for hedging and other purposes.
Examples of CFD trades are available in our brochures and guides and on our website. These examples include positive and negative outcomes. Each research note and recommendation that we produce will contain a suggested stop loss level and target price, showing the potential upside and downside on each trade. We recommend you familiarise yourself with CFD trade examples and if you need any further information please speak to a member of the trading team or seek further independent advice if necessary.
If you successfully open a Prime Markets trading account, it will mean that we have deemed trading in CFDs to be in line with your investment objectives based on the information you have provided us. If your investment strategy or financial situation subsequently changes, we are relying on you updating us of any relevant information. It is important that you inform us immediately if you decide that CFD trading is not suitable for you.
Markets can at times, become very volatile and losses as well as profits can quickly accumulate. As with all margined products it is possible to incur significant losses, similarly, it is possible to lose more than your initial deposit. CFDs are classed as being a ‘contingent liability’. Please read further explanation of these risks below or consult independent advice if you need further information.
2. Stop Losses
Stop losses can be used to limit the downside on each position and we recommend that you use one on every trade to mitigate risk. You can instruct us to place an automated stop loss on each trade. Similarly you can either manually raise the stop-loss orders or use trailing stop-loss orders to lock in profit. Although our staff will always recommend the use of stop losses this may not suit your individual requirements and the decision is ultimately yours to place these orders. Each research note and recommendation that we produce will contain a suggested stop loss level and target price, showing the potential upside and downside on each trade.
Guaranteed stop-loss orders are available on certain stocks, such orders are available on request. If a ‘guaranteed stop-loss’ is not specifically requested, it is industry standard to use a ‘non-guaranteed’ stop-loss order which could be subjected to slippage. If you require further clarification on the costs associated with trading using guaranteed stops please contact your trader or a member of client services before you start trading.
3. Costs
We will set out your dealing costs with you in writing prior to the account being opened. If you have any queries on costs please discuss this with your individual account manager.
We make costs as transparent as possible. Equity CFDs are traded at market prices and market liquidity and we operate Best Execution. The cost of these transactions will show up separately on your contract notes and statements. Costs are charged as a percentage, or basis points, of the total position size traded and are not relative to the deposit or margin used. Costs are charged where indicated on a per transaction basis. Minimum charges can be relevant for smaller trade sizes and there are also charges associated with overnight financing of positions - these will all be set out in writing prior to the account being opened.
With respect to Foreign Exchange trading, costs are often included in the transaction price. If this is the case, we will stipulate the size of the bid/offer spread quoted depending on the products you wish to trade.
We do not take the opposite view or 'run a book' on client trades. As a company we do not take any proprietary positions in the market and therefore our advice and research is completely impartial.
There may be different costs associated with the live price feeds utilised in your trading platform. Please ask a member of Prime Markets to explain the respective policies on price-feed fees relative to your account.
4. Research and Advice
Where Prime CFDs provides advice and research it will be under the following terms:
No on-going advice
From time to time, Prime Markets may, at their discretion, provide information, research, advice and recommendations on our own initiative. However, Prime Markets shall not be under any obligation to provide on-going advice in relation to the management of your investments.
Research and other published information
Prime Markets may from time to time send published research reports and recommendations, advertisements and other publications to you. Where such a document contains a restriction on the persons or category of persons for whom that document is intended or to whom it may be distributed, you agree that you will not pass it on to any such person or category of persons. Before despatch, Prime Markets may have made use of the information on which it is based. We make no representations as to the time of receipt by you of research reports or recommendations and cannot guarantee that you will receive such research reports or recommendations at the same time as other customers. Any such published research reports or recommendations may appear in one or more screen information service.
Limitations
Where Prime Markets does provide market information, research, advice or recommendations, we give no representation, warranty or guarantee as to their accuracy or completeness or as to the tax consequences of any transaction. Unless Prime Markets specifically agree otherwise in writing with you, you hereby acknowledge
(i) that the provision of advice is incidental to your dealing relationship with Prime Markets and provided solely to enable you to make your own investment decisions;
(ii) that the information provided to other customers may be different from advice given to you due to individual analysis of fundamental and technical factors by different personnel and;
(iii) that such information may not be consistent with the investments of Prime Markets associates, directors, employees or agents.
Tax advice
Prime Markets will not provide any tax advice. In addition, Prime Markets shall not at any time be deemed to be under any duty to provide tax advice
5. Contingent Liability Transactions
Contingent liability transactions, such as CFDs and other financial products traded on margin, will require you to make a series of payments against the purchase price, instead of paying the whole purchase price immediately.
If you trade in CFDs you may sustain a total loss of the margin you deposit to establish or maintain a position. If the market moves against you, you may be called upon to pay substantial additional monies or margin at short notice to maintain the position. If you fail to do so within the time required, your position may be liquidated at a loss and you will be liable for any resulting deficit.
Even if a transaction is not margined, it may still carry an obligation to make further payments in certain circumstances over and above any amount paid when you entered the contract.
CFD trades will be carried out for you whenever possible on or under the rules of a recognised or designated investment exchange. However, contingent liability transactions entered into by you that are not traded on or under the rules of a recognised or designated investment exchange (such as foreign exchange transactions) may expose you to substantially greater risks.
6. Futures
Transactions in futures involve the obligation to make, or to take, delivery of the underlying asset of the contract at a future date, or in some cases to settle your position with cash. They carry a high degree of risk. The "gearing" or "leverage" often obtainable in futures trading means that a small deposit or down payment can lead to large losses as well as gains. It also means that a relatively small market movement can lead to a proportionately much larger movement in the value of your investment, and this can work against you as well as for you. Futures transactions have a contingent liability, and you should be aware of the implications of this, in particular the margining requirements, which are set out in paragraph 5 above.
7. Contracts for Difference (CFDs)
Stocks or equities traded on margin are referred to as Contracts For Difference (CFDs). CFDs can also be options and futures on the FTSE 100 index or any other index, as well as currency and interest rate swaps. However, unlike other futures and options, these contracts can only be settled in cash. Investing in CFDs carries similar risks, as investing in futures or options contracts and you should be aware of these as set out in point 6 above. Transactions in contracts for differences may also have a contingent liability and you should be aware of the implications of this as set out in point 5 above.
8. Foreign Exchange (FX)
Transactions in Foreign Exchange contracts carry a high degree of risk. The "gearing" or "leverage" often obtainable in Foreign Exchange trading means that a relatively small market movement can lead to a proportionately much larger movement in the value of your liability. You should be Aware of the implications of this, in particular the margining requirements which, by signing below, will be confirmation by you that this has been explained to you by the broker or a broker introducing your account to the broker.
9. O.T.C. / Off Exchange Transactions
It may not always be apparent whether Foreign Exchange Contracts are effected on exchange or if they are an O.T.C off exchange transaction that the broker has made it clear to you if you are entering into an off exchange O.T.C. transaction. While some off exchange markets are highly liquid, some O.T.C. Contracts may involve greater risk than investing in exchange products because it may be impossible to liquidate an existing position, to assess the value of the position arising from an off exchange transaction, or to assess the exposure to risk. For example, although Foreign Exchange markets are highly liquid, bid and offer prices need not be quoted, and, even where they are, they will be established by dealers in these instruments and consequently it may be difficult to establish what is a fair price.
10. Equities
Trading and investing into equities isn't suitable for everyone: the price and value of equities and the income from them fluctuates so you may not get back the amount you originally invested. How an investment has performed in the past is not a reliable indicator as to how it will perform in the future. So, if you are in doubt about investing in any particular investment product we recommend you consult a financial adviser.
Our equity trading platform enables you to trade in securities via the downloaded or internet based trading platform and via telephone. Our service is provided on an execution-only basis, which means we will not give you any form of investment advice or tax advice, or advise you about the merits of a particular transaction. In the provision of this service we are not required to assess the suitability for you of the securities or services provided or offered and therefore you will not benefit from the Financial Services Authority (FSA) rules on assessing suitability. (An assessment of suitability takes into account an investor's knowledge and experience, financial situation and investment objectives and applies only when a firm makes a personal recommendation or manages investments.)
11.Collateral
If you deposit Collateral as security with the broker, the way in which it will be treated will vary according to the type of transaction and where it is traded. There could be significant differences in the treatment of your Collateral depending on whether you are trading on a recognised or designated investment exchange, under the rules of that exchange (and associated clearing house), or O.T.C. off exchange Contracts. Deposited Collateral may lose its identity as your property once dealings on your behalf are undertaken. Even if your dealings should ultimately prove profitable, you may not get back the same assets that you deposited and you may have to accept payment in cash. You should ascertain from the broker how your Collateral will be dealt with.
12. Clearing House Protections
On many securities and futures exchanges, the performance of a transaction by the broker (or any third party with whom it is dealing on your behalf) is "guaranteed" by the exchange or its clearing house. However, you should be aware that such a guarantee does not apply to Foreign Exchange transactions since there is no clearing house for Foreign Exchange /O.T.C. off-exchange instruments as they are not traded under the rules of a recognised or designated investment exchange.
13. Foreign Markets
Some foreign markets will involve different risks than other markets and in some cases the risks will be greater. On request, the broker will provide an explanation of the relevant risks and protection (if any) which will operate in any relevant foreign markets, including the extent to which the broker will accept liability for any default of a foreign broker or counterparty through whom the broker deals. The potential for profit or loss from transactions on foreign markets or in foreign denominated contracts will be affected by fluctuations in foreign exchange rates.
14. Insolvency
Insolvency or default, of any other brokers involved with your transaction(s), may lead to positions being liquidated or closed out without your consent. In certain circumstances, you may not get back the actual assets that you lodged as Collateral and you may have to accept any available payment in cash. You also understand that the broker does not accept liability for any insolvency of, or default by, other brokers involved with your transactions.
If you would like to request a hard copy of these documents or any further information please call client services on +44 (0)20 7529 6370.
Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily a guide to future performance. Trading in these markets is generally considered to be suitable only for the more experienced investor as it carries a high degree of risk. An investor may not receive back the amount of their original investment and in certain circumstances may be liable for a sum that is greater than their original investment. If in any doubt, please seek independent financial advice.