CFDs Risk Warning
The most important thing you should know when trading CFDs is that it's a complex product which carries a high degree of risk. It may not be suitable for every investor. Because of this, it's up to you to decide whether or not you're comfortable trading CFDs, and you shouldn't trade CFDs without understanding the risks involved. If you're in any doubt, it's important that you seek independent professional advice. Below are some of the risks of trading CFDs with us. Our Product Disclosure Statement (PDS) contains more detailed information about the risks and you should make sure you read it before opening an account with us. CFDs are issued by BCR (referred to below as "BCR", "we", "us" or "our").
With CFDs, you may choose to cover only a small percentage (or margin) of the total value of the underlying asset in order to secure a position.
Information we provide is general information only. Accordingly, before applying to trade with us, you must consider your objectives, financial situation, financial needs, and the significant risk of loss which accompanies the prospects of profit associated with trading in CFDs. We recommend you read our PDS carefully and obtain independent financial, taxation and other professional advice concerning the PDS before you apply to open an Account with us. We can't guarantee specific results from trading in CFDs.
You're not buying or trading the underlying asset.
A CFD is a contract between you and us that could result in either a benefit or a loss from either rising or falling prices. While the price of the CFD usually mimics the price of the underlying asset, this isn't always the case. You need to be aware that you're not buying the underlying asset. We provide CFDs on a range of underlying assets including foreign exchange, precious metals, shares, indices, and commodities.
Risk of Margin Call
At all times, your account value must stay above the Margin Call level, i.e. 30% of the total minimum margin requirement of your open positions; otherwise your transactions may be closed on a first-in, first-out basis. It is your responsibility to monitor your positions closely, and you will be able to monitor your account value through the platform. Closely monitoring your positions is very important because you might need to make immediate additional margin payments to avoid a close-out by the platform. To prevent closure of your transactions, you should deposit a sufficient amount of Maintenance Margin in your account to cover any potential losses or costs from your transactions. It is important to note that even an amount that you previously deposited and which appeared to be more than sufficient at the time, can very quickly become insufficient due to rapidly changing market conditions.
A Counterparty is the person or company on the other side of a financial transaction. When you take a CFD position, you're buying a contract issued by us, and as a result we are your counterparty in the transaction. There is a risk that, as the counterparty to the trade, we may fail to fulfill our obligations to you. This may be because we, or one of our own counterparties (such as our hedge provider), fall into financial difficulties.
Client Money Risk
All client money held by BCR is fully segregated. This means that all client money is held in a segregated bank account, separate from our own money. Client money is not used for the purpose of meeting obligations incurred by us when hedging with counterparties or to meet the trading obligations of other clients. Client money on deposit with BCR is held in a separate account established, maintained and operated in accordance with the Australian Client Money Rules.
Over-the-Counter (OTC) Derivatives
When you enter into any transaction with us through our platform, you will be entering into an off-exchange (sometimes known as an over-the-counter, or 'OTC') derivative, which is non-transferable. This means you will enter into transactions directly with us, and also that those transactions (or 'positions') can only be closed with us. This involves greater risk than investing in a financial instrument such as a share which is transferable, or dealing in an exchange-traded derivative, because your ability to open and close transactions is dependent on our platform being in a position to accept orders from you and to execute them. This also means that BCR CFDs are traded directly with us and not through an exchange. Therefore, you don't gain the benefits associated with trading through a licensed market (such as having a central clearing house guarantee our obligations to you).
The ability of our platform to generate prices and execute orders is dependent on the availability of prices and liquidity in the exchanges, markets and other venues from which we gather data. In addition, because we maintain our own financial stability by hedging with other counterparties, we may be unable to execute your orders where we cannot enter into a corresponding transaction to hedge our own risk (for example, due to the activities of an issuer of shares to which your transactions relate, which can sometimes restrict the market liquidity in those shares). Therefore, market circumstances may impact on your ability to place an order or close a transaction with us. In contrast, if we enter into a corresponding transaction, to hedge our risk, this may have an influence on the underlying market conditions and consequently also on the prices we quote on the platform and your account. Financial markets may fluctuate rapidly and prices of our products are no exception. Any movements in our prices will have a direct effect on your account. One form of price volatility that can happen regularly is called "gapping". This occurs where there is a sudden shift in price from one level to another. This can be caused, for example, by unexpected economic events or market announcements, particularly where these occur outside trading hours. There may not always be an opportunity for you to place an order between the two price levels, or for the platform to execute an open order at a price between those two levels. Certain markets also have limited trading hours which can impose a significant risk to your ability to place orders and close transactions.
There is a risk that other circumstances may prevent us from executing orders, or prevent you from accessing our platform. These include, for example, system errors and outages, maintenance periods, internet connectivity issues and failures of third parties on whom you or we are dependent (for example, internet service providers or electricity companies). We have business continuity measures in place to deal with some of these issues, but in some circumstances you may not be able to access the platform. These technical risks and other circumstances can pose a significant risk to your ability to place orders and close transactions.
Do you understand that:
Trading CFDs is different from other types of financial investments, and you do not own, or have rights in, the underlying assets?
The concepts of margin and leverage apply to this account, which means that when you trade CFDs, you could lose your initial deposit or margin payment and you might have to deposit additional margin to maintain your positions?
The concepts of volatility and market liquidity apply to trading on this account, which means that market circumstances may impact on pricing and on our ability to generate prices or to execute orders?
CFDs are traded on an online platform, which means you need to be familiar with using an online trading platform, including how to open and close a trading position?
It is your responsibility to monitor your CFD position and manage the risks of trading by using tools such as stop loss orders?