Know What Is Involved
Trading commodity futures contracts carry a high risk of loss. As a result, you should carefully consider whether such trading is appropriate for you given your circumstances and financial resources.
- The following points should be noted:
1
loss of the funds
You may sustain a total loss of the funds you deposit with your broker to establish or maintain a position in the commodity futures market, as well as losses in excess of these amounts.
If the market moves against your position, your broker may require you to deposit significant additional margin funds on short notice in order to maintain your position.
If you do not provide the necessary funds within the timeframe specified by your broker, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account.
2
Noninsurance policy
The funds you deposit with a futures commission merchant for trading futures positions are not insured in the event of the futures commission merchant’s bankruptcy or insolvency, or if your funds are misappropriated.
2
Policy of Non-Insurance
The funds you deposit with a futures commission merchant for trading futures positions are not insured in the event of the futures commission merchant’s bankruptcy or insolvency, or if your funds are misappropriated.
3
Investor Protection
The funds you deposit with a futures commission merchant for trading futures positions are not protected by the Securities Investor Protection Corporation, even if the futures commission merchant is registered with the Securities and Exchange Commission as a broker or dealer.
3
Investor Protection
The funds you deposit with a futures commission merchant for trading futures positions are not protected by the Securities Investor Protection Corporation, even if the futures commission merchant is registered with the Securities and Exchange Commission as a broker or dealer.
4
Insolvency & Bankruptcy
In general, funds deposited with a futures commission merchant are not guaranteed or insured by a derivative clearing organization in the event of the futures commission merchant's bankruptcy or insolvency, or if the futures commission merchant is otherwise unable to refund your funds.
Certain derivatives clearing organizations, on the other hand, may offer customers limited insurance. You should ask your futures commission merchant if your funds will be insured by a derivatives clearing organization, and you should be aware of the advantages and disadvantages of such insurance programs.
5
individual benefit
The funds you deposit with a futures commission merchant are not held in a separate account for your personal benefit by the futures commission merchant. Customers’ funds are commingled in one or more accounts by futures commission merchants, and you may be exposed to losses incurred by other customers if the futures commission merchant does not have sufficient capital to cover such other customers’ trading losses.
5
individual benefit
The funds you deposit with a futures commission merchant are not held in a separate account for your personal benefit by the futures commission merchant. Customers’ funds are commingled in one or more accounts by futures commission merchants, and you may be exposed to losses incurred by other customers if the futures commission merchant does not have sufficient capital to cover such other customers’ trading losses.
6
financial instruments
The funds you deposit with a futures commission merchant may be invested in certain types of financial instruments approved by the Commission for such investments by the futures commission merchant. Permitted investments are listed in Commission Regulation 1.25 and include U.S. government securities, municipal securities, money market mutual funds, and certain corporate notes and bonds. The futures commission merchant may keep the interest and other earnings from the customer funds it invests. You should be aware of the various financial instruments in which a futures commission merchant may invest customer funds.
7
Affiliates
Customers’ funds may be deposited with affiliated entities such as affiliated banks, securities brokers or dealers, or foreign brokers by futures commission merchants. Inquire whether your futures commission merchant deposits funds with affiliates and determine whether such deposits by the futures commission merchant with its affiliates increase the risk to your funds.
8
fund protection
You should consult your futures commission merchant concerning the nature of the protections available to safeguard funds or property deposited for your account.
9
price fluctuation
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”).
10
positions & risk
All futures positions involve risk, and a “spread” position may not be less risky than an outright “long” or “short” position.
10
positions & risk
All futures positions involve risk, and a “spread” position may not be less risky than an outright “long” or “short” position.
11
leverage
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.
12
disclosures and financial information
In addition to the risks noted in the paragraphs enumerated above, you should be familiar with the futures commission merchant to whom you entrust your funds for trading futures positions. Beginning July 12, 2014, the Commodity Futures Trading Commission will require each futures commission merchant to make publicly available on its Web site firm-specific disclosures and financial information to assist you with your assessment and selection of a futures commission merchant.
- ALL OF THE POINTS NOTED ABOVE APPLY TO ALL FOREIGN FUTURES TRADING. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS, YOU SHOULD BE AWARE OF THE FOLLOWING ADDITIONAL RISKS:
13
FOREIGN FUTURES TRADING
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 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 protections that apply to domestic transactions, including the right to use domestic alternative dispute resolution procedures. 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 that will apply to your particular transaction.
14
potential profit and loss
Finally, you should be aware that the price of any foreign futures or options 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 time the foreign futures contract is liquidated, or the foreign option contract is liquidated or exercised.
NOTE :
THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER ASPECTS OF THE COMMODITY MARKETS.