Summary of the risks of futures transactions


When somebody trades futures they have to take the following risks into account. Nobody should trade futures without a knowledge and awareness of the risks that exist. Therefore please do not skim over this information, rather read it carefully and follow each thought through.


Market or speculation risks

a) The short-term rights acquired from these transactions in the case of futures transactions may lapse (risk of total loss) or be subject to lower values. This is not exceptional but mainly occurs when the balance is calculated. Futures transactions are not traditional capital investments but rather highly speculative transactions.

b) The loss risk for purchased options is in the option premium used, the costs charged and the consulting fee incurred.

c) For other futures transactions (futures or forex) and the sale of options, it may not be possible to determine the loss risk and it may exceed the security provided by far. Additional security may be required.

If the client does not provide this on request he must expect the immediate closing of his pending futures transactions and the immediate sale of the security already provided. The losses that result from this may cause additional indebtedness and therefore also cover the other assets without the loss risk being determinable in advance.

d) Transactions for which the risks from the futures or share transactions entered into are excluded or restricted may not be made or only at a loss-making market price. This applies in particular to so-called loss limitation (stop) orders.

e) There is an additional risk from potential currency variations if the transactions are processed in a foreign currency or accounting unit (currency risk).

f) So-called spread or combed transactions are not necessarily less risky than individual items.

g) If a futures transaction is executed and the cash commodity is delivered, the applicable conditions of the cash market must be observed. In this case selling on the goods may only be possible with difficulty and at high costs. Up


Risk of high transaction costs

a) The costs of our work or that of another financial services provider used have a negative effect on the financial result of the transactions.

The most important circumstances are shown below; please refer to the information in the brochure under the effects of the costs for the details.

Fees, commission and charges or other costs on the or apart from the capital invested in the stock market adversely affect the chances of making a profit as the costs must first be earned back in the market by a corresponding price development in favour of the customer. This applies in particular to futures transactions.

The costs that have to be paid (fees, commission, charges etc.) may even be higher for options with low premiums (e.g. options from cash and/or short outstanding terms) than the premium that will be paid.

Specialist stock exchange trading, whose estimates determine the prices on stock exchanges and futures markets, does not consider the transaction costs for private speculators. The pricing in the markets reflects the opportunities and risks only in a form that is acceptable for professional trading. The costs are frequently not included when assessing specialist stock exchange trading. All costs charged therefore change the already speculative assessment of professional market participants reflected in the stock exchange price, unilaterally against the investor. As a result of the costs the fundamental assessment and the principles of the futures transaction change.

To be precise, a far higher rate increase is necessary to achieve a profit than is justified by the already speculative expectations of specialist stock exchange trading.

The higher the transaction costs the lower any chances of profit. For repeat speculation, even if there is initial profit, a positive course of the overall speculation is very unlikely, if not completely impossible. Overall it must be stated that the majority of investors lose in these markets.

b) Increase in the risk of initial losses

If the investment is subject to initial loss an extraordinarily high price movement in the initial price is necessary for a futures transactions to reach the initial financial starting point again. It is completely uncertain whether such price movements will occur during the transaction's term.

If there are renewed, additional losses and for subsequent transactions, the market movements necessary to achieve a profit on balance have to reach such levels that this not only excludes a profit at the end of the speculation but must per force result in final losses. So in general if there are initial losses a final loss can be assumed.

c) Increase in the risk due to high transaction levels

Transaction costs may be absolutely too high in relation to the market utilisation or the result of frequent, economically pointless entry and exit to transactions ("churn").

The reason for this may be one-sided advice to the customer that benefit the adviser's commission interests as he receives a share of the commissions. But it may also be the case that e.g. loss limitation measures are calculated too tightly compared with the expected variation range of the prices (stop orders). This can result in hectic entrances and exits with the result that new costs are continually being occurred that then eat up the investment without the occurrence of substantial losses due to changes in the market. This effect is reinforced by low option premiums that are then relatively high compared with the advice and transaction costs.

The chances of profit are excluded in such cases; losses are preprogrammed due to the transaction costs.

d) Loan cost risk

Futures transactions are not suitable for obtaining loans. They should not be financed by loans in any circumstances. If the speculation fails not only must the loan be repaid, so must interest. This makes the loss even higher.


Special risks from the contractual partners

a) The institution running the account from which transactions are executed and at which the account is operated is located in another country. The contracts may be subject to foreign legal requirements and court proceedings may need to be taken in another country. Therefore if a dispute occurs it may be difficult and expensive for the customer to assert his rights with the broker or institute managing the account. It must be expected that the opportunity to assert binding regulations to protect the customer offered in German stock market law or the laws in the customer's home country may not exist. Even a judgement from a domestic court would have to be implemented in another country.

b) If you issue a power of attorney for your account we may transfer the management of your trading items in your account internally to an independent third party who is not known to you and give them a sub-power of attorney.

c) Since the round-turn commission exists for each market activity there may be a potential conflict of interests in that when using the power of attorney granted solely in the interests of commission, transactions are made by the traders that are not in the interests of the customer and the reason for them may simply be to achieve commission income in a particular market situation (see above).


Unavoidable risks

If somebody declares that the risks stated above do not exist in a specific case or even guarantees profits he acts improperly. Please inform us about it immediately. The risks stated above always exist even if we undertake the transactions. These risks can not be excluded completely either by advice from a financial service provider, nor by any technical equipment or computer program. If anybody states the opposite this is not correct. Please inform us of such cases. I know about the risks listed above and am aware of them when carrying out transactions.