This brief statement does not disclose all of the risks and other significant aspects of trading in futures and/or options. In light of the risks, you should undertake such transactions only if you understand the nature of the contracts (and contractual relationships) into which you are entering and the extent of your exposure to risk. Trading in futures and options is not suitable for many members of the public. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances.
1. Effect of Leverage or Gearing
Transactions in futures carry a high degree of risk. The amount of initial margin is small relative to
the value of the futures contract so that transactions are "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 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 to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit.
2. Risk-reducing orders or strategies
The placing of certain orders (e.g. "stop-loss" orders, where permitted under local law, or "stoplimit" 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. Strategies using combinations of positions, such as "spread" and "straddle" positions may be as risky as taking simple "long" or "short" positions.
3. Variable degree of risk
Transactions in options carry a high degree of risk. Purchasers and sellers of options should
familiarize themselves with the type of option (i.e. put or call) which they contemplate trading and
the associated risks. You should calculate the extent to which the value of the options must
increase for your position to become profitable, taking into account the premium and all
The purchaser of options may offset or exercise the options or allow the options to expire. The
exercise of an option results either in a cash settlement or in the purchaser acquiring or delivering
the underlying interest. If the option is on a future, the purchaser will acquire a futures position
with associated liabilities for margin (see the section on futures above). If the purchased options
expire worthless, you will suffer a total loss of your investment which will consist of the option
premium plus transaction costs. If you are contemplating purchasing deep-out-of the-money
options, you should be aware that the chance of such options becoming profitable ordinarily is
Selling ("writing" or "granting") an option generally entails considerably greater risk than
purchasing options. Although the premium received by the seller is fixed, the seller may sustain a
loss well in excess of that amount. The seller will be liable for additional margin to maintain the
position if the market moves unfavorably. The seller will also be exposed to the risk of the purchaser exercising the option and the seller will be obligated to either settle the option in cash or to acquire or deliver the underlying interest. If the option is on a future, the seller will acquire a
position in a future with associated liabilities for margin (see the section on Futures above). If the
option is "covered" by the seller holding a corresponding position in the underlying interest or a
future or another option, the risk may be reduced. If the option is not covered, the risk of loss can
be unlimited. Certain exchanges in some jurisdictions permit deferred payment of the option premium, exposing the purchaser to liability for margin payments not exceeding the amount of the premium. The purchaser is still subject to the risk of losing the premium and transaction costs. When the option is exercised or expires, the purchaser is responsible for any unpaid premium outstanding at that time.
Additional risks common to futures and options
4. Terms and conditions of contracts
You should ask the firm with which you deal about the terms and conditions of the specific futures
or options which you are trading and associated obligations (e.g., the circumstances under which
you may become obligated to make or take delivery of the underlying interest of a futures contract
and, in respect to options, expiration dates and restrictions on the time for exercise). Under certain circumstances the specifications of outstanding contracts (including the exercise price of an option) may be modified by the exchange or clearing house to reflect changes in the underlying interest.
5. Suspension or restriction of trading and pricing relationships
Market conditions (e.g. illiquidity) and/or the operation of the rules of certain markets (e.g. the
suspension of trading in any contract or contract month because of price limits or "circuit breakers") may increase the risk of loss by making it difficult or impossible to effect transactions or liquidate/offset positions. If you have sold options, this may increase the risk of loss.
Further, normal pricing relationships between the underlying interest and the future, and the
underlying interest and the option may not exist. This can occur when, for example, the futures
contract underlying the option is subject to price limits while the option is not. The absence of an
underlying reference price may make it difficult to judge fair value.
6. Deposited cash and property
You should familiarize yourself with the protections accorded money or other property you deposit
for domestic and foreign transactions, particularly in the event of a firm insolvency or bankruptcy.
The extent to which you may recover your money or property may be governed by specific
legislation or local rules. In some jurisdictions, property which had been specifically identifiable as
your own will be pro-rated in the same manner as cash for purposes of distribution in the event of
7. Commission and other charges
Before you begin to trade, you should obtain a clear explanation of all commission, fees and other
charges for which you will be liable. These charges will affect your net profit (if any) or increase
8. Transactions in other jurisdictions
Transactions on markets in other jurisdictions, including markets formally linked to a domestic
market, may expose you to additional risk. Such markets may be subject to regulation which may
offer different or diminished investor protection. Before you trade you should inquire about any
rules relevant to your particular transactions. Your local regulatory authority will be unable to
compel the enforcement of the rules of regulatory authorities or markets in other jurisdictions
where your transactions have been effected. You should ask the firm with which you deal for
details about the types of redress available in both your home jurisdiction and other relevant
jurisdictions before you start to trade.
9. Currency risks
The profit or loss in transactions in foreign currency denominated contracts (whether they are
traded in your own or another jurisdiction) will be affected by fluctuations in currency rates where
there is a need to convert from the currency denomination of the contract to another currency.
10. Trading facilities
Most open-outcry and electronic trading facilities are supported by computer-based component
systems for the order routing, execution, matching, registration or clearing of trades. As with all
facilities and systems, they are vulnerable to temporary disruption or failure. Your ability to
recover certain losses may be subject to limits on liability imposed by the system provider, the
market, the clearinghouse and/or member firms. Such limits may vary, you should ask the firm
with which you deal for details in this respect.
11. Electronic trading
Trading on an electronic trading system may differ not only from trading in an open-outcry market
but also from trading on other electronic trading systems. If you undertake transactions on an
electronic trading system, you will be exposed to risks associated with the system including the
failure of hardware and software. The result of any system failure may be that your order is either
not executed according to your instructions or is not executed at all.
12. Off-exchange transactions
In some jurisdictions, and only then in restricted circumstances, firms are permitted to effect offexchange transactions. The firm with which you deal may be acting as your counterparty to the
transaction. It may be difficult or impossible to liquidate an existing position, to assess the value,
to determine a firm price or to assess the exposure to risk, For these reasons, these transactions
may involve increased risks. Off-exchange transactions may be less regulated or subject to a
separate regulatory regime. Before you undertake such transactions, you should familiarize
yourself with applicable rules and attendant risks.