Risk Disclosure Important Futures Trading Disclaimer Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. You must review customer account agreement prior to establishing an account. Investors could lose more than their initial investment. You must review customer account agreement prior to establishing an account. Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. Forex Risk Disclosure High Risk Investment Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Market Opinions Any opinions, news, research, analyses, prices, or other information contained on this website is provided as general market commentary, and does not constitute investment advice. Cannon and GFT will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Internet Trading Risks There are risks associated with utilizing an Internet-based deal execution trading system including, but not limited to, the failure of hardware, software, and Internet connection. Since Cannon and GFT do not control signal power, its reception or routing via Internet, configuration of your equipment or reliability of its connection, we cannot be responsible for communication failures, distortions or delays when trading via the Internet. Cannon and GFT employ back up systems and contingency plans to minimize the possibility of system failure, and trading via telephone is always available. Accuracy of Information The content on this website is subject to change at any time without notice, and is provided for the sole purpose of assisting traders to make independent investment decisions. Cannon and GFT have taken reasonable measures to ensure the accuracy of the information on the website, however, does not guarantee its accuracy, and will not accept liability for any loss or damage which may arise directly or indirectly from the content or your inability to access the website, for any delay in or failure of the transmission or the receipt of any instruction or notifications sent through this website. Distribution This site is not intended for distribution, or use by, any person in any country where such distribution or use would be contrary to local law or regulation. None of the services or investments referred to in this website are available to persons residing in any country where the provision of such services or investments would be contrary to local law or regulation. It is the responsibility of visitors to this website to ascertain the terms of and comply with any local law or regulation to which they are subject. GFTs contractual agreement not to seek redress for slippage, its obligation to execute stop loss orders at the stop loss price or better, will not apply to limit and stop loss orders during hours when GFT is closed. This also does not include bad price spikes. Bad price spikes are removed from the price charts quickly to alleviate confusion. FX Futures Risk Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. You must review customer account agreement prior to establishing an account. Investors could lose more than their initial investment. You must review customer account agreement prior to establishing an account. Cannon Trading OverviewForex Disclosure Documents Overview Part I Article by Bart Mallon (forexregistration) This is part one of a two part discussion. This article will provide an overview of the likely requirements for Forex Disclosure Documents. The items in this Forex Disclosure Document Overview are based on the items discussed in Disclosure Documents A Guide for CPOs and CPAs provided by the NFA and based on CFTC rules and regulations. Please note that these are only likely requirements as proposed and final rules have not yet been released. For those managers which will be managing forex hedge funds, the disclosure document requirements are in addition to the requirements imposed by other securities laws (please see hedge fund offering documents or a more detailed explanation of the forex hedge fund offering document requirements). Additionally, if the Forex CPO or CTA also trades other instruments besides spot forex then the document will need to address those items as well your hedge fund forex attorney will be able to help you draft these items. Who must prepare a Forex Disclosure Document The NFA has discussed a new category of CPO and CTA whose business involves retail off-exchange foreign exchange (forex) contracts. These new categories of registered persons, as provided by the NFA, are called Forex CPOs and Forex CTAs. Like the CPO and CTA disclosure documents, it is likely that both Forex CPOs and Forex CTAs will need to deliver a disclosure document to prospective investors. The Forex CPO or Forex CTA will need to make delivery at the same time or before the delivery of the Forex Pools offering documents or the Forex Programs advisory agreement. The Forex CPO or CTA will need to receive signed acknowledgement by the investor that they have received the disclosure document. We do not yet know if there are any exceptions to Forex Disclosure Document delivery requirements. One question that the CFTC will need to answer is whether Forex CPOs and CTAs will be able to fall within the 4.7 exemption like traditional CPOs and CTAs. The Basics of the Forex Disclosure Document Cover Page. The Forex Disclosure Document will probably need to have a CFTC mandated disclaimer which basically states that the CFTC has not reviewed the disclosure document for the merits of the trading program. Front Cover Disclaimer. Inside the front cover the Forex disclosure document there will need to be a few paragraphs that serve as a general disclaimer of risk disclosure statement. This disclaimer will be based on a uniform template for all Forex disclosure documents. Table of Contents. A basic table of contents will be required. Basic Background Information. The beginning part of the document will need to include such basic information as name of the Forex CPO or CTA, addresses, phone numbers, etc. The business background of each principal (each a Forex Associated Person or Forex AP) as well as the officers and directors of the firm will need to be provided. The information each of the people will need to provide includes: date of NFA membership, date of CFTC registration, and dates of employment for last five years. Forex Dealer Member. For Forex CTAs, if the program requires an investor to maintain an account with a Forex Dealer Member (FDM) then the name of the FDM must be disclosed. For Forex CPOs, the document should disclose who will be the funds FDM. Forex Introducing Brokers. For Forex CTAs, if the program requires an investor to have an account introduced by a Forex Introducing Broker (Forex IB), then the name of the Forex IB must be disclosed. Principal Forex Risk Factors. For both Forex CPOs and Forex CTAs the document must include a discussion of the main risks involved in the Forex program. Such risks are expected to include: country or sovereign risk, credit risk, exchange rate risk, interest rate risk, liquidity risk, market risk, operational risk, settlement risk and Herstaat risk. In addition, for Forex CPOs, there are other risks involved in the structure of the investment vehicle which will need to be disclosed. Forex Trading Program. All aspects of the proposed trading program must be disclosed and discussed. A Forex trading program will usually include information on the investment object and the investment strategies as well as a discussion of the risk management procedures the Forex manager will utilize. This area of the program may also discuss the Forex managers investment philosophy. Forex Fees. All aspects of the fee structure of the Forex hedge fund or Forex separately managed account must be discussed. This will include both management fees and performance fees (if applicable) as well as the methods for calculating the fees. The rules require specificity here so this will be one area where precise information is required. Conflicts of Interest. This will be very important information and the Forex manager will want to discuss this section thoroughly with its attorney or compliance professional. All actual or potential conflicts of interest must be disclosed. All fee and business arrangements must be disclosed. For example, if the forex manager will have any sort of pip sharing arrangement with the Forex Dealer Member, this will need to be disclosed. Litigation. If any of the persons or entities involved in the trading program have been subject to material administrative, civil or criminal actions within the past five years, all information regarding the action must be disclosed. Disclosure is required for the Forex CTA, Forex CPO, Forex IB, Forex Dealer Member or FCM, and any principles of the Forex CPO or CTA. Oftentimes the FCM (with regard to CPO and CTA disclosure documents) must disclose a lengthy list of actions. Trading Forex for Own Account. The disclosure document must disclose whether the Forex manager andor any employees will be trading for their own accounts. If the Forex manager andor any employees will be trading for their own accounts then the document must disclose whether the manager or employees will allow investors to review the trading records of the manager or employees. Forex Disclosure Documents Overview Part II will be released tomorrow and will cover the following items: Performance Disclosures, Other General Items, Material Information and Supplemental Information. Please see other related HFLB articles: Post navigation 9 thoughts on ldquo Forex Disclosure Documents Overview Part I rdquoFULL RISK DISCLOSURE The following statement is furnished pursuant to Commodity Futures Trading Commission (ldquoCFTCrdquo) Regulation 1.55(c).This brief statement does not disclose all of the risks and other significant aspects of trading in futures, forex and options. In light of the risks, you should undertake such transactions only if you understand the nature of the contracts (and contractual relationships) into which you are entering and the extent of your exposure to risk. Trading in futures, forex and options is not suitable for many members of the public. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. The risk of loss in trading commodity futures contracts and foreign currency can be substantial. You should, therefore, carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should be aware of the following points: You may sustain a total loss of the funds that you deposit with your broker to establish or maintain a position in the commodity futures market or foreign exchange market, and you may incur losses beyond these amounts. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the required funds within the time required by your broker, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account. The funds you deposit with a futures commission merchant for trading futures and forex positions are not protected by insurance in the event of the bankruptcy or insolvency of the futures commission merchant, or in the event your funds are misappropriated. The funds you deposit with a futures commission merchant for trading futures or forex 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. The funds you deposit with a futures commission merchant are generally not guaranteed or insured by a derivatives clearing organization in the event of the bankruptcy or insolvency of the futures commission merchant, or if the futures commission merchant is otherwise unable to refund your funds. Certain derivatives clearing organizations, however, may have programs that provide limited insurance to customers. You should inquire of your futures commission merchant whether your funds will be insured by a derivatives clearing organization and you should understand the benefits and limitations of such insurance programs. The funds you deposit with a futures commission merchant are not held by the futures commission merchant in a separate account for your individual benefit. Futures commission merchants commingle the funds received from customers in one or more accounts 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 customersrsquo trading losses. The funds you deposit with a futures commission merchant may be invested by the futures commission merchant in certain types of financial instruments that have been approved by the Commission for the purpose of such investments. 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 retain the interest and other earnings realized from its investment of customer funds. You should be familiar with the types of financial instruments that a futures commission merchant may invest customer funds in. Futures commission merchants are permitted to deposit customer funds with affiliated entities, such as affiliated banks, securities brokers or dealers, or foreign brokers. You should inquire as to whether your futures commission merchant deposits funds with affiliates and assess whether such deposits by the futures commission merchant with its affiliates increases the risks to your funds. You should consult your futures commission merchant concerning the nature of the protections available to safeguard funds or property deposited for your account. 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 (ldquolimit moverdquo). All futures, forex and options positions involve risk, and a ldquospreadrdquo position may not be less risky than an outright ldquolongrdquo or ldquoshortrdquo position. The high degree of leverage (gearing) that is often obtainable in futures and forex 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. In addition to the risks noted in the paragraphs enumerated above, you should be familiar with the futures commission merchant you select to entrust your funds for trading futures positions. As of July 12, 2014, the Commodity Futures Trading Commission requires 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. Information regarding this futures commission merchant may be obtained by visiting the websites of the respective FCM partner of NinjaTrader Brokerage: Dorman Trading (dormantrading ), Phillip Capital (phillipcapital ), FXCM (fxcm ) ALL OF THE POINTS NOTED ABOVE APPLY TO ALL FUTURES AND FOREX TRADING WHETHER FOREIGN OR DOMESTIC. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS, YOU SHOULD BE AWARE OF THE FOLLOWING ADDITIONAL RISKS: Foreign futures transactions involve executing and clearing trades on a foreign exchange. This is the case even if the foreign exchange is formally ldquolinkedrdquo 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 a 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 of the protections which apply to domestic transactions, including the right to use domestic alternative dispute resolution procedures. In particular, 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 which will apply to your particular transaction. Finally, you should be aware that the price of any foreign futures or option 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 foreign futures contract is liquidated or the foreign option contract is liquidated or exercised. THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER ASPECTS OF THE COMMODITY AND FOREIGN CURRENCY MARKETS. Forex IBs Need Disclosure Documents Offering Memorandums Your firm has finally decided to become a CFTC registered, NFA member forex broker (8220IB8221) or money manager (8220CTA8221 or 8220CPO8221). Congratulations, I salute you for making the right choice, but now what It should come as no surprise that your firm will now have to adhere to a plethora of regulatory requirements, but are you prepared To further educate you about your obligations as a regulated company let8217s take some time to discuss a largely misunderstood NFA compliance rule that could greatly affect your business. NFA Compliance Rule 2-41 NFA compliance rule 2-41 was put on the books in November of 2008 and became effective as of December 8th, 2008. Since that time there has been little written on this rule and the word on the street is that enforcement efforts related to it will be stepped up heavily during 2010. Assuming this rule will be pushed to the forefront of regulation during the next year what can your firm do to prepare As with all regulatory obligations one must first understand what is required to comply with a rule so let8217s start there. Briefly NFA Rule 2-41 states the following for most forex firms: Forex Pool Operators amp Funds - Are required to prepare a disclosure document and file it with NFA 21 days prior to soliciting the funds first potential pool participant. This document must then be supplied to the client prior to them receiving an account subscription agreement and depositing funds to a pool. In addition if a firm will trade futures and forex products or just forex products, 2-41 requires very specific risk disclaimers. Trading Advisors - Are required to prepare a disclosure document and file it with NFA 21 days prior to soliciting the first potential pool participant. This document must then be supplied to the client prior to them receiving the subscription agreement and determining to follow a specific trading strategy. In other words, before an advisor can take discretion over an account and guide client trading a disclosure document must be provided. This disclosure document must be written in nearly an identical fashion to documents required for on-exchange traded products under CFTC 4.34, 4.35, and 4.36. Also, just as with fund managers, in this instance a specific risk disclosure related to discretionary forex trading is required. What this Means for Forex IB8217s and CTA8217s If your forex firm is currently registered as a CTA or CPO then this rule probably isn8217t that surprising to you. However, if your company is registered as an IB you may be in for quite the shock. Notice above that I said 8220Trading Advisors8221 not CTA8217s or CPO8217s I wrote this intentionally because of the way the rule is written. Based on the language included in 2-41, depending on a firms unique business circumstances, it is possible that introducing brokers may be required to prepare a disclosure document for their customers. If this is the case for your company not having supplied a disclosure document to clients, or even worse, not having a document prepared altogether could be disastrous to your business operations. Now that you know you may need such a document, the next question your firm should be asking is: 8220How can we determine if we are required to write and provide a disclosure document to our customers8221 Determining your Obligation I have put together the following guidelines to help your firm in its attempts to determine if a disclosure document is needed. When reading this list please keep in mind that all brokerages have very specific and unique business circumstances. As a result this simple process should only be used as a tool to determine your potential obligations under NFA Rule 2-41. If you have any doubts about your obligations you should seek proper advice from a regulatory professional. Step 1: Your company must first determine if its clients would be considered eligible contract participants or 8220ECP8217s8221 as defined by the Commodity Exchange Act8217s Section 1a (12). In almost all retail forex circumstances the accounts you8217ll be handling will not qualify as ECP8217s. Thus, for most reading this article it would be wise to move on to step two. More specifically if you trade with ECP8217s you probably are already well aware of the fact that they are qualified as such. Step 2: Evaluate the business model utilized by your brokerage. Does your firm take discretion over customer trades Do your accounts trade in a self directed manner Do you promote an electronic trading strategy and require a power of attorney or letter of direction to execute trade signals on a client8217s behalf The answer to these questions should give you more insight into whether or not you will need a disclosure document. Generally, if you are taking discretion over client accounts and making all or the majority of trading decisions on behalf of your clients you will likely need a disclosure document. If your accounts are self directed it is likely you will not be considered a trading advisor in the context of Rule 2-41. Evaluating the mechanics of how electronic trading systems operate is difficult. In my opinion there is no hard and fast way to know for certain if this type of trading would require a disclosure document. In order to determine your obligation in this instance it would be best to hold a detailed discussion of such a system with a regulatory professional. Step 3: Consider how your company is being compensated by its FDM andor its clients on account activity. Are you paid a standard pip rebate or commission on the forex transactions running through your business Are you paid some type of variable performance or management fee The answer to these questions when considered in conjunction with step 2 above are critical to whether or not your business will need a disclosure document. Generally when a performance or management fee is paid it is a good sign that you are operating in a manner that will require additional disclosure under 2-41. Conversely, if your firm is being paid strictly on a transactional basis and is making no trade decisions for customers it is less likely that it will be required to produce further disclosure. Finding out for Sure, What to do if a Disclosure Document is needed If it appears your firm will need a disclosure document or if you are unsure about your company8217s obligations, what is the next step The next step is that your firm should contact a regulatory professional to further assist in evaluating your unique business situation. Seeking professional help in this matter will be the only option if your firm is unable to determine its requirement under rule 2-41 on by itself. Seeking council from NFA could be an option however they will not be able to further assist you in the creation of a document if your company does in fact need one. As a result your business will likely end up requiring private regulatory assistance at some point anyhow so starting there just makes the most sense. When looking for a regulatory professional it is critical to understand that the forex trading community operates in a manner which is drastically different from that of the futures and or securities market spaces. The forex industry is evolving almost on a daily basis, many of the rules are slightly more than a year old, and not that many firms are familiar with them. I mention this because standard service providers are likely to improperly guide you if they apply futures and securities specific rules and regulations to your unique forex questions. Therefore, unless you8217re willing to become a guinea pig, it is imperative that you utilize a firm that is familiar with all of NFA8217s forex rules. A misstep in the way of improper customer disclosure could be devastating to your business and if the rumors are true, 2010 could bring about a very painful and long year dealing with the CFTC and NFA. Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.
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