Futures Risk Disclosure
CFTC Risk Disclosure for FOREX
NFA Bill of Rights
RISK DISCLOSURE STATEMENT
THE RISK OF LOSS IN TRADING COMMODITY FUTURES CONTRACTS CAN BE SUBSTANTIAL. YOU
SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU
IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD BE AWARE OF
THE FOLLOWING POINTS:
1. You may sustain a total loss of the funds that you deposit with your broker to establish or
maintain a position in the commodity futures market, and you may incur losses beyond these amounts. If the
market moves against your position, you may be called upon by your broker to deposit a substantial amount of
additional margin funds, on short notice, in order to maintain your position. If you do not provide the required
funds within the time required by your broker, your position may be liquidated at a loss, and you will be liable
for any resulting deficit in your account.
2. Under certain market conditions, you may find it difficult or impossible to liquidate a position.
This can occur, for example, when the market reaches a daily price fluctuation limit ('limit move').
3. Placing contingent orders, such as 'stop-loss' or 'stop-limit' orders, will not necessarily limit
your losses to the intended amounts, since market conditions on the exchange where the order is placed may
make it impossible to execute such orders.
4. All futures positions involve risk, and a 'spread' position may not be less risky than an outright 'long' or 'short' position.
5. The high degree of leverage (gearing) that is often obtainable in futures trading because of the small margin requirements can work against you as well as for you. Leverage (gearing) can lead to large losses as well as gains.
6. You should consult your broker concerning the nature of the protections available to safeguard funds or property deposited for your account,
ALL OF THE POINTS NOTED ABOVE APPLY TO ALL FUTURES TRADING WHETHER FOREIGN OR
DOMESTIC. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING FOREIGN FUTURES OR OPTIONS
CONTRACTS, YOU SHOULD BE AWARE OF THE FOLLOWING ADDITIONAL RISKS:
7. Foreign futures transactions involve executing and clearing trades on a foreign exchange. This is the case even if the foreign exchange is formally 'linked' to a domestic exchange, whereby a trade executed on one exchange liquidates or establishes a position on the other exchange. No domestic organization regulates the activities of a foreign exchange, including the execution, delivery, and clearing of transactions on such an exchange, and no domestic regulator has the power to compel enforcement of the rules of the foreign exchange
or the laws of the foreign country. Moreover, such laws or regulations will vary depending on the foreign country
in which the transaction occurs. For these reasons, customers who trade on foreign exchanges may not be
afforded certain of the protections which apply to domestic transactions, including the right to use domestic
alternative dispute resolution procedures. In particular, funds received from customers to margin foreign
futures transactions may not be provided the same protections as funds received to margin futures transactions
on domestic exchanges. Before you trade, you should familiarize yourself with the foreign rules which will apply
to your particular transaction.
8. Finally, you should be aware that the price of any foreign futures or option contract and,
therefore, the potential profit and loss resulting therefrom, may be affected by any fluctuation in the foreign
exchange rate between the time the order is placed and the foreign futures contract is liquidated or the foreign
option contract is liquidated or exercised.
THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER ASPECTS OF THE COMMODITY MARKETS
CFTC RISK DISCLOSURE STATEMENT For FOREX TRADING Trading foreign currencies is a challenging and potentially profitable opportunity for educated and experienced investors. However, before deciding to participate in the Forex market, you should carefully consider your investment objectives, level of experience and risk appetite. Most importantly, do not invest money you cannot afford to lose. There is considerable exposure to risk in any foreign exchange transaction. Any transaction involving currencies involves risks including, but not limited to, the potential for changing political and/or economic conditions that may substantially affect the price or liquidity of a currency. More over, the leveraged nature of foreign exchange trading means that any market movement will have an equally proportional effect on your deposited funds. This may work against you as well as for you. The possibility exists that you could sustain a total loss of initial margin funds and be required to deposit additional funds to maintain your position. If you fail to meet any margin call within the time prescribed, your position will be liquidated and you will be responsible for any resulting losses. Investors may lower their exposure to risk by employing risk-reducing strategies such as 'stop-loss' or 'limit' orders. There are also risks associated with utilizing an internet-based deal execution software application including, but not limited, to the failure of hardware and software.
The risk of loss in trading foreign exchange can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. In some cases, managed foreign exchange accounts are subject to substantial charges for management and advisory fees. It may be necessary for those accounts that are subject to these charges to make substantial trading profits to avoid depletion or exhaustion of their assets. The regulations of the Commodity Futures Trading Commission (CFTC) require that prospective customers of an FCM receive a disclosure document when they are solicited to enter into an agreement whereby the FCM will direct or guide the clients trading and that certain risk factors are highlighted. This brief statement cannot disclose all of the risks and other significant aspects of the foreign exchange markets. The CFTC has not passed upon the merits of participating in any of these trading programs nor on the adequacy or accuracy of any of these disclosure documents.
National Futures Association's Investors' Bill of Rights
Making Informed Decisions
In many important ways, an investor is not simply a consumer but a party to a legal contract. Both the offeror and purchaser of an investment have rights and responsibilities. This "Bill of Rights" is designed to assist you the investor in making an informed decision before committing your funds. It is not intended to be exhaustive in its descriptions. Should you desire further information about a particular type of investment, you are invited to contact the appropriate organization listed at the end of this brochure.
Honesty in advertising
Many individuals first learn of investment opportunities through advertising in a newspaper or magazine, on radio, television, the internet, or by mail. Phone solicitations are also regarded as a form of advertising. In practically every area of investment activity, false or misleading advertising is against the law and subject to civil, criminal or regulatory penalties.
Bear in mind that advertising is able to convey only limited information, and the most attractive features are likely to be highlighted. Accordingly, it is never wise to invest solely on the basis of an advertisement. The only bona fide purposes of advertising are to call your attention to an offering and encourage you to obtain additional information.
Full and accurate information
Before you make an investment, you have the right to seek and obtain information about the investment. This includes information that accurately conveys all the material facts about the investment, including the maj
or factors likely to affect its performance.
You also have the right to request information about the firm or the individuals with whom you would be doing business and whether they have a "track record." If so, you have the right to know what it has been and whether it is real or "hypothetical." If they have been in troub
le with regulatory authorities, you have the right to know this. If a rate of re
turn is advertised, you have the right to know how it is calculated and any assumptions it is based on. You also have the right to ask what financial interest the seller of the investment has in the sale. Ask for all available literature about the investment. If
there is a prospectus, obtain it and read it. This is where the bad as well as t
he good about the investment has to be discussed. If an investment involves a company whose stock is publicly traded, get a copy of its latest annual report. It can also be worthwhile to check out the Internet or visit your public library to find out what may have been written about the investment in recent business or financial periodicals.
Obtaining information isn't likely to tell you whether or not a given investment will be profitable, but what you are able to find out--or unable to find out--could help you decide if it's an appropriate investment for you at that time. No investment is right for everyone.
Disclosure of risks
Every investment involves some risk. You have the right to find out what these risks are prior to making an Investment. Some, of course, are obvious: Shares of stock may decline in price. A business venture may fail. An oil well may turn out to be a dry hole.
Others may be less obvious. Many people do not fully understand that even a U.S. Treasury Bond may fluctuate in market value prior to maturity. Or that with some investments it is possible to lose more than the amount initially invested. The point is that different investments involve different kinds of risk and these risks can differ in degree. A general rule of thumb is that the greater the potential reward, the greater the potential risk.
In some areas of investment, there is a legal obligation to disclose the risks in writing. If the investment doesn't require a prospectus or written risk disclosure statement, you might nonetheless want to ask for a written explanation of the risks. The bottom line: Unless your understanding of the ways you can lose money is equal to your understanding of the ways you can make money, don't invest!
Explanation of obligations and costs
You have the right to know, in advance, what obligations and costs are involved in a given investment. For instance, does the investment involve a requirement that you must take some specific action by a particular time? Or is there a possibility that at some future time or under certain circumstances you may be obligated to come up with additional money?
Similarly, you have the right to a full disclosure of the costs that will be or may be incurred. In addition to commissions, sales charges or "loads" when you buy and/or sell, this includes any other transaction expenses, maintenance or service charges, profit sharing arrangement, redemption fees or penalties and the like.
Time to consider
You earned the money and you have the right to decide for yourself how you want to invest it. That includes sufficient time to make an informed and well-considered decision. High pressure sales tactics violate the spirit of the law, and most investment professionals will not push you into making uninformed decisions. Thus, any such efforts should be grounds for suspicion. An investment that "absolutely has to be made right now" probably shouldn't be made at all.
Responsible advice
Investors enjoy a wide range of different investments to choose from. Taking into consideration your financial situation, needs and investment objectives, some are likely to be suitable for you and others aren't, perhaps because of risks involved and perhaps for other reasons. If you rely on an investment professional for advice, you have the right to responsible advice.
In the securities industry, for example, "suitability" rules require that investment advice be appropriate for the particular customer. In the commodity futures industry a "know your customer" rule requires that firms and brokers obtain sufficient information to assure that investors are adequately informed of the risks involved. Beware of someone who insists that a particular investment is "right" for you although he or she knows nothing about you.
Best effort management
Every firm and individual that accepts investment funds from the public has the ethical and legal obligation to manage money responsibly. As an investor, you have the right to expect nothing less.
Unfortunately, in any area of investment, there are those few less-than-ethical persons who may lose sight of their obligations, and of yo
ur rights: By making investments you have not authorized, by making an excessive
number of investments for the purpose of creating additional commission income for themselves or, at the extreme, by appropriating your funds for their personal use. If there is even a hint of such activities, insist on an immediate and fu
ll explanation. Unless you are completely satisfied with the answer, ask the app
ropriate regulatory or legal authorities to look into it. It's your right.
Complete and truthful accounting
Investing your money shouldn't mean losing touch with your money. It's your right to know where your money is and the current
status and value of your account. If there have been profits or losses, you hav
e the right to know the amount and how and when they were realized or incurred. This right includes knowing the amount and nature of any and all charges against
your account.
Most firms prepare and mail periodic account statements, generally monthly. And you can usually obtain interim information on request. Wha
tever the method of accounting, you have both the right to obtain this informati
on and the right to expect that it be timely and accurate.
Access to your funds
Some investments include restrictions as to whether, when or how you can have access to your funds. You have the right to be clearly in
formed of any restrictions in advance of making the investment. Similarly, if th
e investment may be illiquid--difficult to quickly convert to cash--you have the right to know this beforehand. In the absence of restrictions or limitations, i
t's your money and you should be able to have access to it within a reasona
ble period of time.
You should also have access to the person or firm that has your funds. Investment scam artists are well versed in ways of finding you but, particularly once they have your money in hand, they can make it difficult or impossible for you to find them.
Recourse, if necessary
Your rights as an investor include the right to seek an appropriate remedy if you believe someone has dealt with you--or handled your investment--unfairly or dishonestly. Indeed, even in the case of reasonable misunderstandings, there should be some way to reconcile differences.
It is wise to determine before you invest what avenues of recourse are available to you if they should be needed. One means of exercising your right of recourse may be to file suit in a court of law. Or you may be able to initiate arbitration, mediation, or reparation proceedings through an exchange or a regulatory organization.
Additional information about filing complaints can be obtained through various regulatory organizations.
Investors' Bill of Rights has been prepared as a service to the investing public by:
National Futures Association
200 West Madison Street, Suite 1600
Chicago, Illinois 60606-3447
(800) 621-3570
http://www.nfa.futures.org/
In association with the following organizations:
American Association of Individual Investors
625 North Michigan Avenue
Chicago, Illinois 60611
(312) 280-0170
http://www.aaii.com
Commodity Futures Trading Commission
Three Lafayette Centre
1155 21st Street, N.W.
Washington, DC 20581
(202) 418-5080
http://www.cftc.gov
Council of Better Business Bureaus
4200 Wilson Boulevard, Suite 800
Arlington, Virginia 22203
(703) 276-0100
http://www.bbb.org
National Consumers League
1701 K Street, N.W., Suite 1200
Washington, DC 20006
(202) 835-3323
http://www.natlconsumersleague.org
North American Securities Administrators Association
10 G Street, N.E., Suite 710
Washington, DC 20002
http://www.nasaa.org
United States Postal Service
Chief Postal Inspector
Washington, DC 20260-2100
(202) 268-2284
http://www.usps.gov
If you suspect mail fraud or misrepresentation, contact the Chief Postal Inspector or your local Postmaster or Postal Inspector. For any other mail service problems contact your local Postmaster, or contact:
Consumer Advocate
United States Postal Service
Washington, DC 20260-2200
(202) 268-2284
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