Understanding the Risks
The most important thing you should know when trading margin FX and CFDs is that it’s a complex product which carries a high degree of risk. It may not be suitable for every investor. It’s up to you to decide whether or not you’re comfortable trading margin FX and CFDs, and you shouldn’t trade these products 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. Product Disclosure Statement (PDS) contains more detailed information about the risks and you should make sure you read it before opening an account.
ACY Capital does not give personal advice
Information we provide is general information only. Accordingly, before applying account, you must consider your objectives, financial situation and needs and the significant risk associated with trading in margin FX and CFDs. We recommend you read the PDS issued by Oanda Australia Pty Ltd carefully and obtain independent financial, taxation and other professional advice. We can’t guarantee specific results from trading.
You’re not buying or trading the physical asset
When you trade margin FX and CFDs, you could result in either a benefit or a loss from either rising or falling prices. You need to be aware that you’re not buying the physical FX or the future index contracts or the physical bullion. You are only trading the price difference for the CFD instruments.
ACY Capital are over-the-counter (OTC) derivatives
When you enter into any trade on the MT4 platform, you will be entering into an over-the-counter (OTC) derivative, which is non-transferable. This means you will enter into trades directly with the product issuer OANDA, and also that those trades (or ‘positions’) can only be closed with OANDA. This also means that margin FX and CFDs are traded directly with our product issuer and not through an exchange such as the ASX. Therefore, you don’t gain the benefits associated with trading through a licensed market.
When trading margin FX, you are only required a small percentage of margin to open a position. For example, if you buy $10,000 worth of AUD/USD that have a margin rate of 2%, you only need margin of $200 to open the position. However, your exposure to the market (or risk) is $10,000. If the market moves in your favour for 10%, you can make $1000 profit. If the market moves against you for 10%, you can incur $1000 loss, which is greater than the $200 margin that you put in.
The ability of the MT4 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 our product issuer gathers data. Financial markets may fluctuate rapidly for the prices of your traded products. 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.
Risk of liquidation
At all times, your account revaluation amount must stay above the liquidation level for your account otherwise all your positions may be closed. However, we do not guarantee such closure and you must not rely on it. It is your responsibility to monitor your positions closely and you will be able to monitor your account value and account revaluation amount through the platform. To prevent closure of your positions, you should deposit a sufficient amount of money into your account to cover any potential losses or costs from your trades. 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 OANDA, and as a result, they are your counterparty in the transaction. There is a risk that, as the counterparty to the trade, they may fail to fulfill their obligations to you. This may be because OANDA, or one of OANDA’s own counterparties (such as our hedge provider), fall into financial difficulties. ACY Capital do not have control over our product issuer. Hence, you need to be aware of this risk that out of ACY Capital’ control.
Client money risk
Money you deposit with the issuer is segregated from company money in a client account, although may be co-mingled with other client money. It is important to note that holding your money in one or more segregated accounts may not afford you absolute protection. Oanda Australia Pty Ltd (the issuer) enters into arrangements with third party execution and clearing providers for the facilitation of transactions and settlements, and avails client monies received for margin calls and settlements to such providers for this purpose. Accordingly, clients are indirectly exposed to the financial risks of their counterparties and organisations with whom they hold client funds. If the financial condition of Oanda or assets of their counterparties or the parties with which they hold client assets deteriorate, then clients could suffer loss because the return of the client capital could become difficult.
Technical risks and other circumstances may affect your transactions
There is a risk that other circumstances may prevent OANDA from executing orders, or prevent you from accessing the MT4 platform. These include, for example, system errors and outages, maintenance periods, internet connectivity issues and failures of third parties on whom you or OANDA are dependent (for example, internet service providers or electricity companies). Product issuer has 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.