Before you apply to begin trading with us, you must carefully consider whether using CFDs is appropriate for you in the light of your circumstances and financial position.
You should be aware that margin trading is a high risk geared investment strategy and we do not consider it suitable for many members of the public.
You should not deal in CFDs unless you understand the nature of the contract you are entering into and the extent of your exposure to risk from that contract.
CFDs involve different levels of exposure to risk and, in deciding whether to trade in such instruments, you should be aware of the following points:
Trading in CFDs carries a high degree of risk. The “gearing” or “leverage” involved in trading CFDs means that a small initial margin payment can potentially lead to large losses. The geared nature of CFDs also means that CFD trading can carry greater risks than conventional share trading, which is generally not geared.
A relatively small market movement can lead to a proportionately much larger movement in the value of your investment, and this can work against you as well as for you.
Most CFDs are off-exchange derivatives. This might be considered to involve greater risk than an on-exchange derivative as there is no exchange market on which to close out an open position – you are only able to open and close your positions with us.
Foreign markets will involve different risks to Australian markets. The potential for profit or loss from CFDs relating to a foreign market or denominated in a foreign currency will be affected by fluctuations in foreign exchange rates. It is possible to incur a loss if exchange rates change to your detriment, even if the price of the instrument to which the CFD relates remains unchanged.
CFDs are contingent liability transactions which are margined and require you to make a series of payments against the purchase price, instead of paying the whole purchase price immediately, and they may only be settled in cash.
You may sustain a total loss of the margin that you deposit with us to establish or maintain a position. If the market moves against you, you may be called upon to pay substantial additional margin at short notice. If you fail to do so within the required time, your position may be liquidated at a loss and you will be liable for any resulting deficit. You will be deemed to have received a notice requiring the payment of such funds, even if you are not at home or do not receive the messages we leave for you, if the notices are delivered to your nominated contact points.
Even if a CFD is not margined, it may still carry an obligation to make further payments in certain circumstances over and above any amount paid when you entered into the contract.
Under certain trading conditions it may be difficult or impossible to liquidate a position. This may occur, for example, at times of rapid price movement if the price rises or falls in one trading session to such an extent that trading in the underlying market is suspended or restricted.
A Limited Risk CFD limits the extent of your liability, but you may sustain the loss in a relatively short time. Placing a Non-Guaranteed Stop Order will not necessarily limit your losses to the intended amounts, because market conditions may make it impossible to execute such an Order if the underlying market moves straight through the stipulated price.
We will not provide you with personal financial product advice relating to CFDs and we will not make CFD recommendations of any kind. The only advice we will give you will be as to how CFDs work.
There is no clearing house for CFDs, and the performance of a CFD by IG MARKETS LTD is not ‘guaranteed’ by an exchange or clearing house.
Our insolvency or default may lead to your positions being liquidated or closed out without your consent. As all deposits lodged with us are held on trust for you in a regulated trust account, in such circumstances those deposits would attract all the legal protections afforded to trust money. Net unrealised running profits are also held in trust by us (in excess of our contractual and regulatory requirements) and would normally be similarly protected for your benefit as beneficial owner, unless a Court were not to uphold the trust in relation to the net unrealised profits, in which event you would rank as an unsecured creditor of ours in relation to such net unrealised profits.
Although by dealing with us you will not be dealing in securities, you need to be aware that you may still be subject to the Corporations Act 2001 and, in particular, the market manipulation and insider trading provisions of the Act.
The obligations to you under the Customer Agreement and the CFDs are unsecured obligations, meaning that you are an unsecured creditor of ours.
Derivative markets are speculative and volatile
Derivative markets can be highly volatile. The prices of CFDs and the underlying securities, currencies, commodities, financial instruments or indices may fluctuate rapidly and over wide ranges and in reflection of unforeseen events or changes in conditions, none of which can be controlled by you.
The prices of CFDs will be influenced by unpredictable events including, amongst other things, changing supply and demand relationships, governmental, agricultural, commercial and trade programs and policies, national and international political and economic events and the prevailing psychological characteristics of the relevant marketplace.
Your money is deposited in a separate trust account
Any money that you deposit with us will be held separately from our money, in a trust account, and held and dealt with in accordance with the Governing Legislation and the Customer Agreement. As permitted under Governing Legislation, your money may be co-mingled into one or more trust accounts with our other customers’ money, which is also held on trust.
Balances in currencies other than Australian dollars may be maintained by you on your account and, when requested by you and/or necessitated by your trading, conversions between currencies will be made at an exchange rate no more than 0.5% less favourable to you than the prevailing interbank mid-market spot rate at the time of the conversion.
A crystallised profit or loss that is realised in a currency other than your base account currency will be converted daily unless requested otherwise by you. Different frequency options are available when opening an account and can be modified by you using the self service function on our Electronic Trading Service or by request to us.
For example, if you open a CFD on the movement in price of IBM stock, it will be priced in US dollars. The deposit requirement for the CFD will be calculated in US dollars and you will be required to maintain the AUD equivalent as margin (assuming your account is denominated in AUD). Any variation in the AUD/USD exchange rate or the underlying CFD deposit calculation may alter the amount of Australian Dollars required to maintain the margin requirement. Any crystallised profit or loss on the CFD will calculated and posted in US dollars. Conversion of this profit or loss to AUD is subject to your preferences.
You may choose to maintain your account in Australian dollars, US dollars or Sterling.
We will not give you any personal financial product advice. Any general financial product advice that we may give you will have been prepared without taking into account your personal objectives, financial situation or needs.
Accordingly, you should consider carefully trading with us and the appropriateness of any general advice having regard to your personal objectives, financial situation and needs, and obtain financial and legal advice before you open an account and trade with us. Nothing in this PDS should be taken to be a recommendation to trade in CFDs or trade in any particular share, stock, index, commodity or currency by way of CFDs, and any reference to a particular share, stock, index, commodity or currency is for illustration only.
The Customer Agreement contains a provision by which you agree that you enter into all CFDs in reliance on your own judgement, and that we will not be liable for any losses, costs, expenses or damages suffered by you arising from any inaccuracy or mistake in any information we give to you in the absence of fraud, wilful default or gross negligence or as required by legislation.
Our understanding of the tax treatment of CFDs is set out in section 7 of the Product Disclosure Statement. There is a risk that our understanding may be incorrect and/or that the tax treatment of these products may change. In the event that we are obliged to pay any tax in respect of your personal liability for CFDs undertaken with us, the Customer Agreement contains an indemnity that would allow us to recover such payments from you.
Going short of individual shares
Going short of an individual share carries some additional risks that don’t apply to clients who are long of individual shares. These risks include but are not limited to:
forced buy-back due to changes in regulatory or stock-borrowing conditions;
imposition of, and increase in, borrowing charges over the lifetime of the trade; and
the obligation to take the other side of purchase opportunities (eg. rights issues) afforded to clients who are long of the same stock. This might result in the obligation to go further short at unfavourable market prices.
In addition, you should be aware that corporate events affecting obligations of short sellers can often be announced at very short notice leaving no opportunity, or choice, to close positions out and avoid participation.