KEY PRODUCT INFORMATION DOCUMENT CONTRACT FOR DIFFERENCES (CFD) ON FX PAIRS - SPOT

Transcription

1 KEY PRODUCT INFORMATION DOCUMENT CONTRACT FOR DIFFERENCES (CFD) ON FX PAIRS - SPOT This is nt a marketing material. This dcument prvides yu with key infrmatin abut this prduct grup. The purpse f this infrmatin dcument is t assist yu understanding the nature, risks, csts and ptential gains and lsses f this prduct grup. In additin, this dcument may help yu t cmpare this prduct with ther prducts. PRODUCT DESCRIPTION Name f the Prduct : Cntract fr Difference (CFD) n a Freign Exchange (FX) pair Offered by : Tera Eurpe Limited ( TERAFXUK, we r us), authrised and regulated by the Financial Cnduct Authrity FCA Registratin number Firm Cntact Details : 125 Old Brad Street, Lndn, EC2N 1AR, UK Last Updated : January 2018 A Freign Exchange (FX) Cntract fr Difference (CFD) is always quted as a currency pair. An example wuld be EURUSD r USDJPY. The first currency listed is referred t as the base currency and the secnd currency listed is referred t as the qute currency. Expsure f a CFD is reflected in the qute currency. ALERT: Yu are abut t purchase a prduct that is nt simple and may be difficult t understand. TYPE& OBJECTIVE In a CFD cntract, the parties agree t exchange the difference, in cash, between the pening value and the clsing value f the cntract. Yu can pen and clse a CFD at any time during market hurs. There is n recmmended hlding perid, n cancellatin perid and therefre n cancellatin fees. CFD n a FX pair is a leveraged cntract entered int between yu and TERAFXUK that allws yu t speculate n rising r falling prices in an underlying FX pair. Leverage means yu nly have t utlay a percentage f the cntract size f a transactin. FX trading invlves the buying (knwn as ging lng ) and selling (knwn as ging shrt ) f tw different currencies. They can be traded n the current price, spt r n a frward, future price. This infrmatin dcument is fr spt FX CFDs. The price f the CFD is derived frm the price f the underlying Frex pair. FX trading gives yu the chice t buy the currency pair if yu think the price f the base currency will rise in relatin t the qute currency, r alternatively t sell if yu think that the price f the qute currency will rise in relatin t the base currency. FX pairs are quted by bid and ask prices at any given time. If yu want t sell (shrt) the FX pair, yu sell at bid price. If yu want t buy (lng) the FX pair, yu buy at ask price. Example 1: Currency pair: EURUSD Trading at: (bid) / (ask)

2 Lnging (r buy) EURUSD means yu believe that EUR (Eur) will gain value against USD (American Dllar). Alternatively, shrting (r sell) EURUSD means yu believe that EUR will lse value against USD. Therefre, if yu lng EURUSD, then yu buy it at based n this example. Alternatively, if yu shrt EURUSD, yu sell it at Fr instance, if the price f EURUSD changes t / , then lng psitins wuld have earned and shrt psitins wuld have lst. Yu can clse yur lng psitin at with prfit and/r yu can clse yur shrt psitin at with lss. FX pairs have pre-determined cntract sizes (see ur list in ur website under Prducts/FX) and in lts. 1 lt equals t 1 cntract size in base currency. The bjective f this prduct is t give yu a leveraged expsure t the mvement in the value f the underlying FX pair (whether up r dwn) and t allw yu t speculate n the price mvement f an exchange rate withut ever taking delivery f the currency ver any perid. Leverage r trading n margin is ne f the key features f trading CFDs. Leverage is the rati f the margin required t pen the psitin against the ntinal trade value (cntract size). Example 2: Currency pair: EURUSD; Cntract Size: 100,000 Trading at: (bid) / (ask) If yu buy 1 lt standard cntract, then yur expsure wuld be 1 x 100,000 = 100,000 r USD120,001 (100,000 x this is the mid-price). If yur leverage is 1:100 (1%), then yur required margin is 100,000/100 = 1,000 r USD1,200 (i.e., 1% f the expsure). The frmula t calculate prfit and lss in a CFD FX pair is as fllws in qute currency: (clse price pen price) x cntract size x lts Assuming yu clsed yur lng psitin in Example 2 at , then yur prfit calculatins wuld be as fllws: ( ) x 100,000 x 1 = $8 (since qute currency is USD) Make sure yu fully understand the nature f CFD Trading and the belw risks assciated with trading such prducts because there is a chance yu can lse mre than yur initial depsit. TERM The spt CFD des nt have a pre-defined maturity date (i.e.; pen-ended). There is n recmmended hlding perid; yu have the discretin t determine the apprpriate hlding perid based n yur wn individual trading strategy and bjectives. In additin, yu must maintain sufficient margin in yur accunt t keep yur psitins pen. Trading n margin means yu culd quickly lse yur trading balance. INTENDED RETAIL INVESTOR Small t large scale investrs aiming t speculate n mvements in the freign exchange market: The investr must have a high risk tlerance The investr must be aware f the fact that lsses may exceed depsits The investr must understand the mechanics and risks f leveraged trading including the use f margin

3 RISKS Risk Indicatr: 1 Lwer Risk Higher Risk Abve indicatr is a guide t the level f risk f this prduct cmpared t ther prducts (i.e., hw likely it is that the prduct will lse mney because f mvements in the markets r because we are nt able t pay yu). We have classified this prduct as 7 ut f 7 (i.e., highest risk calss), since there is a strng pssibility that yu culd lse all f yur trading balance. CFDs are cnsidered t be very risky prducts. Main reasns are utlined belw: Leverage Risk: Trading risks are magnified by leverage. CFD trading requires yu t maintain a certain level f funds (called margin) in yur accunt t keep yur psitins pen. It is calculated by taking a percentage f the cntract size as explained abve in Example 2. As the expsure is significantly higher than the margin due t leverage, a small adverse mvement in the underlying FX pair may cause a substantial lss t yur depsit. The ttal lss may significantly exceed the depsit. See ur scenari analysis at the bttm f this dcument t have a better understanding. Currency Risk: The cntract currency f the CFD may be different frm the base currency f yur accunt. Fr instance, yur accunt/base currency may be USD hwever yu may trade EURJPY. The final prceed yu will get depends n the exchange rate between the tw currencies. The prceeds may nt be wrth as much as they wuld have been at the nset f trade due t an adverse mvement in the exchange rate. This risk is nt cnsidered in the indicatr shwn abve. Cunterparty risk: CFDs are Over the Cunter (OTC) prducts, implying that they are nt traded n a licensed financial market r n an rganized exchange such as Lndn Stck Exchange. Basically, CFD is a cntract entered int between yu and us. The CFD prducts that we ffer can nly be clsed with us and nt with any ther CFD prvider. Therefre, yu are expsed t the risk f TERAFXUK as a cunterparty. We may nt be able t fulfil ur bligatins t yu including the risk that we may nt be able t pay yu. In this case, yu culd lse yur entire depsit, hwever, yu may benefit frm a cnsumer prtectin scheme (FSCS). TERAFXUK segregates all retail client funds frm its wn mney in accrdance with FCA s Client Asset rules. Please refer t fr detailed infrmatin. The risk indicatr shwn abve des nt cnsider the cnsumer prtectin. Margin Risk: We may clse yur pen CFD trade if yu d nt maintain the minimum margin that is required, if yu are in debt t us, r if yu cntravene market regulatins. This prcess may be autmated. Gap/Slippage Risk: Markets are smetimes very vlatile, especially during data annuncements and vlatility tend t rise under unexpected develpments regarding a currency. The quted prices may mve sharply frm ne level t the next, implying that yur rder may be executed at a wrse price than yu had intended. Technical Risks: Trading largely depends n technlgy; i.e., PC, mbile phne, tablets and internet are used t cnnect and trade fr yur wn accunt. Therefre, disruptins in said

4 services may lead t delays in the pening and clsing f transactins. TERAFXUK assumes n respnsibility under these circumstances. SCENARIO ANALYSIS Assumptins fr this scenari analysis: Accunt Base USD Traded Curreny Pair EURUSD Cntract Size 100,000 Traded Lt 1 Leverage 1% $1,200 Minimum Margin 200 r $240 FX Pair Bid/Ask n pening / Trading Term intraday FOR LONG POSITION Perfrmance Scenari Clsing Price Price Δ pips Swap Charge Prfit/Lss % Gain/Lss vs. Ntinal % Gain/Lss vs. Favurable $ % 50.0% Mderate $ % 8.3% Unfavurable $ % -33.3% Stress $1, % % FOR SHORT POSITION Perfrmance Scenari Clsing Price Price Δ pips Swap Charge Prfit/Lss % Gain/Lss vs. Ntinal % Gain/Lss vs. Favurable $ % 50.0% Mderate $ % 8.3% Unfavurable $ % -33.3% Stress $1, % % This analysis is aimed at shwing yu ptential gains r lsses fr the given perid under different scenaris (assumptin in the table is that the trades are intraday). Each scenari represents an estimate f future perfrmance and is nt an exact indicatr nr is based n past perfrmance. Yur return, bth negative and psitive, will vary depending n hw the market perfrms and hw lng yu hld the CFD. Nte that, in case the psitins are carried vernight, swap charges wuld apply as well fr lng psitins whilst swap incme wuld apply fr shrt psitins fr EURUSD. Stress scenari shws the event that yu lse mre than initial margin (extreme market circumstance); hwever it is nt the wrst case scenari. The figures d nt take int accunt yur persnal tax situatin. Leverage magnifies the risks and gain/lss prspects. Belw example shws the same scenari with 1:400 leverage.

5 Assumptins fr this scenari analysis: Accunt Base USD Traded Curreny Pair EURUSD Cntract Size 100,000 Traded Lt 1 Leverage 0.25% $300 Minimum Margin 50 r $60 FX Pair Bid/Ask n pening / Trading Term intraday FOR LONG POSITION Perfrmance Scenari Clsing Price Price Δ pips Swap Charge Prfit/Lss % Gain/Lss vs. Ntinal % Gain/Lss vs. Favurable $ % 200.0% Mderate $ % 33.3% Unfavurable $ % % Stress $1, % % FOR SHORT POSITION Perfrmance Scenari Clsing Price Price Δ pips Swap Charge Prfit/Lss % Gain/Lss vs. Ntinal % Gain/Lss vs. Favurable $ % 200.0% Mderate $ % 33.3% Unfavurable $ % % Stress $1, % % COSTS The principle cst f trading CFDs is incrprated in what is knwn as the Spread, which is the difference between the buy and sell price (r bid and ask price). This cst is realised each time yu pen and clse a psitin. Our raw spreads are variable. Plus, we put a mark-up n raw spreads, which are fixed. Since we are nt market makers, ur spreads fluctuate related t the spreads we get frm ur liquidity prviders. Fr instance, in ur example under scenari analysis, entry and exit cst (spread cst) fr 1 lt wuld be $2. Secnd mst imprtant cst f trading CFDs are financing csts, r swap charges. A swap is charged every day t yur accunt fr psitins carried vernight. Smetimes swap are debited and smetimes credited, depending f yur psitin being lng r shrt as well as the relative interest rates f the cuntries f the currencies invlved in the trade. The current swap fees can be referenced within the trading platfrm in the symbl specificatin sectin. As swap csts are charged vernight, the lnger yu hld yur psitin, the larger it gets. Currency cnversin is als a cst fr the trades that are denminated in a currency ther than the base currency f yur accunt because any cash, realised prfit and lsses, adjustments, fees and charges that are denminated in a currency ther than the base currency f yur accunt, will be cnverted t the base currency f yur accunt.

6 COMPLAINTS The Cmpany has established and maintains a Cmplaints Handling Prcedure. If yu wish t submit a cmplaint, yu can send an t cmpliance@terafx.c.uk r in writing t Tera Eurpe Limited, 125 Old Brad Street, Lndn, EC2N 1AR, UK. If yu remain dissatisfied with final ur respnse, yu may refer yur cmplaint t the Financial Ombudsman Service. Please find a cpy f the Financial Ombudsman Service s cnsumer leaflet at Fr mre infrmatin, please refer t their website: The Financial Ombudsman Service s cntact details are: cmplaint.inf@financial-mbudsman.rg.uk Address: The Financial Ombudsman Service Exchange Twer Lndn United Kingdm E14 9SR OTHER RELEVANT INFORMATION This dcument is a detailed summary f this prduct grup. Please send an t custmerservices@terafx.c.uk fr mre detailed infrmatin and fr additinal inquiries. Yu may find ur prduct specificatins (trading hurs, swap and margin calculatin, leverage, cntract sizes, etc.) n ur website at