In considering whether to trade in high risk foreign
currencies, foreign currency forwards, options or derivatives, forex
trading, different marketplaces, funds, and other activities where
there exists a substantial amount of price volatility and financial
leverage, you should read, understand, and seriously consider all
of the following real risk factors which you are certain to encounter.
1. Investing in foreign currencies, foreign currency derivatives,
forex trading, different marketplaces, funds, and other activities
involves an extremely high degree of risk of loss. Investors can and
do lose all or part of the money they deposit. Because of the volatile
nature of foreign currency prices, the market price and, consequently,
the value of your account can rise and fall sharply without notice.
The use of leverage and/or options can substantially increase your
risk of loss. Deposit only money you can afford to lose.
2. As the result of an adverse price movement, or other
factors, you may sustain a total loss of your initial deposit and
any additional funds that you deposit. You may also be subject to
losses that exceed the amount deposited in your account when trading
in certain leveraged products or short (opening sell) options. The
use of leverage generally causes the value of your market position
to change at a greater rate than that of the underlying asset, substantially
increasing the risk of loss. Only the assumption of risk of loss gives
rise to the opportunity to profit.
3. Options trading is a zero-sum game; for every dollar
of profit there is an equal, opposite dollar of loss. Some studies
have shown that more than eighty percent of small investors who trade
options ultimately lose money. An option is an extremely complicated
trading vehicle, which carries substantial risks that are not inherent
to the trading of the underlying asset. For example, options lose
value with the passage of time (time/decay); options are generally
not fully responsive to the price movement of the underlying asset
(delta). Option profitability is substantially dependent on the exercise
(strike) price of the option relative to the underlying market price.
An option with a strike price which is deep out of the money is ordinarily
unlikely to ever become profitable. You should familiarize yourself
with the specific and systematic risks, terminology, and workings
of long and short, call and put options before depositing money for
options trading.
4. No trading system has ever been devised that can
consistently produce profits. It is only the assumption of risk of
loss that gives rise to the opportunity to profit. Some academics
theorize that at any given time the current market price of a currency
(or other liquid asset) reflects all known information about that
currency, and any future price movement is an absolute uncertainty,
completely random in nature (i.e., Random Walk Theory). Past price
performance is not necessarily predictive of future results. The trade
recommendations of brokers, traders, and analysts represent only their
opinions and are normally insignificant in the face of the overall
market.
5. Placing certain types of orders, such as stop loss
or stop limit orders, which may be intended to limit the amount of
loss, may not be effective because price movement or market conditions
can make it impossible to execute such orders. Strategies utilizing
spreads and/or straddles may have as much risk as simple long or short
positions. It may be difficult or impossible to execute orders and
offset or liquidate open market positions due to market liquidity
and/or operations.
6. Commissions, bid/ask spreads and other transaction
fees can have a substantial adverse effect on your market positions'
ability to break even, and, therefore, your ultimate profitability
or loss. In order for you to achieve a net profit on any transaction,
the price received upon the sale of the market position must exceed
the purchase price by at least the amount of any commissions and other
fees paid. Trading foreign currencies or derivatives, forex trading,
different marketplaces, funds, and other activities may involve frequent
purchase and sale transactions, resulting in significant fees and
commissions. Commission charges and other such fees increase the risk
of loss and can account for all or part of trading losses. Generally,
to calculate your break-even price, total all commissions, bid/ask
spreads and fees, divide by the unit quantity involved in the transaction,
and then add the result to the buy price or subtract it from the sell
price.
7. There is a risk associated with the solvency of the
clearing firm and/or the counter party to your transactions, which
frequently will be the clearing firm. There is no governmental or
private institution or party which regulates or assures performance
on open positions in the foreign currency market, nor is the brokerage
or clearing firm insured against default or insolvency. You may face
the risk of loss of unrealized gains in open position and all funds
in your account due to the failure, inability or refusal to perform
on foreign currency or derivative transactions, or the insolvency,
bankruptcy or liquidation of the clearing firm, market maker or counter
party. The clearing firm does not guarantee the credit worthiness
of any third-person counter party.
8. You should have sufficient knowledge and experience
in financial and investment matters as to be capable of understanding
and evaluating the risks and merits of trading in foreign currencies
and/or derivatives, forex trading, different marketplaces, funds,
and other activities thereof. If you lack such knowledge and experience,
or do not understand foreign currencies, foreign currency derivatives,
forex trading, different marketplaces, funds, and other activities
you should seek the advice of a qualified attorney or trained financial
advisor before depositing any money for trading purposes.
9. This brief statement cannot disclose all of the risks
and other significant aspects of trading in foreign currencies, foreign
currency derivatives forex trading, different marketplaces, funds,
and other activities. You should, therefore, carefully study and understand
all aspects of the account, the market, and the trading vehicle, prior
to depositing any money. If you do not understand any part of this
Risk Disclosure Statement, seek the advice of a qualified attorney
or trained financial advisor.
You should read this statement carefully.