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This brief statement does not disclose all of the risks and other significant
aspects of trading in futures and 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.
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| FUTURES |
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1. Effect of 'Leverage' or 'Gearing'
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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.
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2. Risk-reducing orders or strategies
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The placing of certain orders (e.g. 'stop-loss' orders, 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. Strategies using combinations of positions, such as 'spread'
and 'straddle' positions, may be as risky as taking simple 'long' or 'short' positions.
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| OPTIONS |
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3. Variable degree of risk
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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 transaction costs.
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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 is ordinarily remote.
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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
also will 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 position 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.
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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.
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| ADDITIONAL RISKS COMMON TO FUTURES AND OPTIONS |
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4. Terms and conditions of contracts
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You should ask the firm with which you deal about the term 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 of 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 clearinghouse
to reflect changes in the underlying interest.
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5. Suspension or restriction of trading and pricing relationships
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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.
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6. Deposited cash and property
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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 specified 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 a shortfall.
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7. Commission and other charges
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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 your loss.
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8. Transactions in other jurisdictions
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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.
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9. Currency risks
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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.
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10. Trading facilities
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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.
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11. Electronic trading
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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 risk 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.
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12. Off-exchange transactions
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In some jurisdictions, and only then in restricted circumstances, firms are permitted
to effect off-exchange 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 fair 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.
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