Risk Factors
ACKNOWLEDGMENT OF RISK FACTORS
By signing this Agreement CLIENT hereby acknowledges CLIENT’S understanding and knowledge that
transactions in Precious Metals options, Foreign Currency Options and Energy options (hereinafter “options”) are subject to highly material risk factors AND THAT CLIENT KNOWINGLY AND WILLINGLY ASSUMES ALL SUCH RISKS. These risks include, but are not limited to the following:
A. The Markets can be volatile and unpredictable
Commodity prices may fluctuate in accordance with unexpected political or economic developments in foreign countries which cannot be predicted or reasonably foreseen.
B. Precious Metals, Foreign Currency and Energy Market Fluctuations
Trading in these markets is subject to small and large fluctuations in prices. Many factors influence the trading in the markets including, but not limited to, economic and political events, government intervention or the lack thereof, the actions of speculators and the weather.
C. Past Performance is no Indication of Future Profitability
CLIENT’S risk of loss when speculating in options is great regardless of how current prices compare to past market prices of those options.
D. Conflict of Interest
Tower Trust, (hereinafter “ICF”), may act as counterparty to transactions for the CLIENT’S account and sell options to the CLIENT from its own account or may buy options from the customer for its own account and there is an inherent conflict of interest in such case. The counterparty will have a conflict of interest in giving the highest price it can from any such sale and the lowest possible price for any such purchase. As these (derivative) options are not traded on any exchange, all sales and purchases for the CLIENT’S account will be executed by the ICF at whatever price it is then quoting. Supra Capitals (hereinafter “IB”) will attempt to secure fair pricing to its clients by the ICF. However, no guarantees can be made as to the ultimate equitability of the prices obtained from the ICF. Furthermore, from time to time there may be rebates and/or incentives paid by the ICF to PT,S.A based on trading volume and/or premiums raised. An inherent conflict of interest would exist in this instance because PT,S.A may receive revenue in addition to its commissions based upon higher trading volume of its clients with the ICF. This would not violate the fiduciary responsibility of PT,S.A to its clients.
E. Risk of Insolvency
There is no clearing house which assures performance for open positions, nor is CLIENT’S account insured. CLIENT may face a risk of loss of unrealized gains and all CLIENT funds due to the risk of failure, the inability or refusal to perform with respect to options, or the bankruptcy or liquidation of the counterparty or carrying firm.
F. Limited Diversification
CLIENT’S account will take positions in option products. Accordingly, an account invested solely in option transactions will not achieve the diversification that might be expected in a balanced portfolio.
G. Suitability
Speculation in options is not suitable for all investors. Some studies have shown that more than 80% of small investors who trade in options ultimately lose money. Only investors who appreciate and understand the risks involved and the nature of options trading should invest. Any additional funds added to your
account should be discretionary capital set aside strictly for speculative purposes. All funds used for this type of speculation should only be disposable income so that a loss of part or all of this money will not
affect your lifestyle.
H. Substantial Fees and Costs
The trading of option contracts may involve frequent purchases and sales of such contracts, resulting in significant fees and commissions. In order to achieve a net profit from any option transaction in the client’s account, the price received by the client upon the sale of the option will have to exceed the client’s purchase price and/or premium plus commission plus any other fees and costs. There is no guarantee that any trading will result in a profit to the customer and the customer may in fact incur a loss of all or part of his/her investment.
I. Liquidity Risk
Option contracts are executed with various non-U.S. firms. Although the market is generally a liquid market, there is no limit on daily price movements in options contracts; therefore options trading is not subject to position limits. Firms are not required to continue to make markets in options. Certain firms may refuse to quote prices for option contracts or may quote prices with an unusually wide buy-sell spread. Therefore, under these or other circumstances, it may be difficult or not possible to liquidate an existing position at the desired price, which could result in a loss of unrealized profit or even an outright loss on the position.
J. Option Trading
An option is an extremely complicated trading vehicle which carries substantial risks not inherent in the trading of the underlying asset. For example, options lose value with the passage of time (time-decay); they also are generally not fully responsive to the price movement of the underlying asset (delta). Option profitability is substantially dependent on the exercise (strike) price of the option. An option with a strike price which is deep out-of-the-money has less probability of becoming profitable. You should familiarize yourself with the specific and systematic risks, terminology, and workings of long and short, call and put options before investing any money. Placing stop-loss orders, which are intended to limit the amount of loss, may not be effective because market conditions can make it impossible to execute such orders. Strategies utilizing spreads and/or straddles may have as much risk as simple long and short positions. It may be difficult or impossible to execute orders and offset or liquidate open market positions due to market liquidity and/or operations.
K. Lack of Regulation
At the current time, no banking authority regulates options or the international market. In addition, certain trades may occur in foreign markets in which there may be little or no governmental regulation of the trading. Neither PT,S.A or ICF is registered as a broker-dealer with any government agency nor have the options been registered with any governmental agency. PT,S.A and ICF are of a view that ultimate CLIENT profitability depends on fluctuations in world prices and not on the efforts of PT,S.A and/or ICF, and that each CLIENT individually owns the Commodity option thereby removing these vehicles from the definition of securities. CLIENTS are subject to the risks that PT,S.A’S and ICF’s business is not regulated by any regulatory agency and, thus, do not enjoy those protections which are inherent in a regulated business. Moreover, PT,S.A and/or ICF could become the subject of adverse regulatory actions or determinations by one or more governmental agencies or courts. At any given time, officers, managers, or agents, of the companies may have had previous regulatory sanctions by governmental agencies. Neither PT,S.A, ICF, or its officers, managers, nor agents are licensed with any governmental agency. Finally, there is a risk that a government agency could assume regulatory authority over PT,S.A, ICF or options, and that PT,S.A and/or ICF could not comply with the resulting regulatory scheme, and would have to cease doing business.
THE FOREGOING RISK FACTORS ARE NOT ALL INCLUSIVE. CLIENTS ARE URGED TO STUDY THE WORLD OPTION MARKET BEFORE DECIDING TO SPECULATE IN THESE MARKETS.
By signing this Agreement CLIENT hereby acknowledges CLIENT’S understanding and knowledge that
transactions in Precious Metals options, Foreign Currency Options and Energy options (hereinafter “options”) are subject to highly material risk factors AND THAT CLIENT KNOWINGLY AND WILLINGLY ASSUMES ALL SUCH RISKS. These risks include, but are not limited to the following:
A. The Markets can be volatile and unpredictable
Commodity prices may fluctuate in accordance with unexpected political or economic developments in foreign countries which cannot be predicted or reasonably foreseen.
B. Precious Metals, Foreign Currency and Energy Market Fluctuations
Trading in these markets is subject to small and large fluctuations in prices. Many factors influence the trading in the markets including, but not limited to, economic and political events, government intervention or the lack thereof, the actions of speculators and the weather.
C. Past Performance is no Indication of Future Profitability
CLIENT’S risk of loss when speculating in options is great regardless of how current prices compare to past market prices of those options.
D. Conflict of Interest
Tower Trust, (hereinafter “ICF”), may act as counterparty to transactions for the CLIENT’S account and sell options to the CLIENT from its own account or may buy options from the customer for its own account and there is an inherent conflict of interest in such case. The counterparty will have a conflict of interest in giving the highest price it can from any such sale and the lowest possible price for any such purchase. As these (derivative) options are not traded on any exchange, all sales and purchases for the CLIENT’S account will be executed by the ICF at whatever price it is then quoting. Supra Capitals (hereinafter “IB”) will attempt to secure fair pricing to its clients by the ICF. However, no guarantees can be made as to the ultimate equitability of the prices obtained from the ICF. Furthermore, from time to time there may be rebates and/or incentives paid by the ICF to PT,S.A based on trading volume and/or premiums raised. An inherent conflict of interest would exist in this instance because PT,S.A may receive revenue in addition to its commissions based upon higher trading volume of its clients with the ICF. This would not violate the fiduciary responsibility of PT,S.A to its clients.
E. Risk of Insolvency
There is no clearing house which assures performance for open positions, nor is CLIENT’S account insured. CLIENT may face a risk of loss of unrealized gains and all CLIENT funds due to the risk of failure, the inability or refusal to perform with respect to options, or the bankruptcy or liquidation of the counterparty or carrying firm.
F. Limited Diversification
CLIENT’S account will take positions in option products. Accordingly, an account invested solely in option transactions will not achieve the diversification that might be expected in a balanced portfolio.
G. Suitability
Speculation in options is not suitable for all investors. Some studies have shown that more than 80% of small investors who trade in options ultimately lose money. Only investors who appreciate and understand the risks involved and the nature of options trading should invest. Any additional funds added to your
account should be discretionary capital set aside strictly for speculative purposes. All funds used for this type of speculation should only be disposable income so that a loss of part or all of this money will not
affect your lifestyle.
H. Substantial Fees and Costs
The trading of option contracts may involve frequent purchases and sales of such contracts, resulting in significant fees and commissions. In order to achieve a net profit from any option transaction in the client’s account, the price received by the client upon the sale of the option will have to exceed the client’s purchase price and/or premium plus commission plus any other fees and costs. There is no guarantee that any trading will result in a profit to the customer and the customer may in fact incur a loss of all or part of his/her investment.
I. Liquidity Risk
Option contracts are executed with various non-U.S. firms. Although the market is generally a liquid market, there is no limit on daily price movements in options contracts; therefore options trading is not subject to position limits. Firms are not required to continue to make markets in options. Certain firms may refuse to quote prices for option contracts or may quote prices with an unusually wide buy-sell spread. Therefore, under these or other circumstances, it may be difficult or not possible to liquidate an existing position at the desired price, which could result in a loss of unrealized profit or even an outright loss on the position.
J. Option Trading
An option is an extremely complicated trading vehicle which carries substantial risks not inherent in the trading of the underlying asset. For example, options lose value with the passage of time (time-decay); they also are generally not fully responsive to the price movement of the underlying asset (delta). Option profitability is substantially dependent on the exercise (strike) price of the option. An option with a strike price which is deep out-of-the-money has less probability of becoming profitable. You should familiarize yourself with the specific and systematic risks, terminology, and workings of long and short, call and put options before investing any money. Placing stop-loss orders, which are intended to limit the amount of loss, may not be effective because market conditions can make it impossible to execute such orders. Strategies utilizing spreads and/or straddles may have as much risk as simple long and short positions. It may be difficult or impossible to execute orders and offset or liquidate open market positions due to market liquidity and/or operations.
K. Lack of Regulation
At the current time, no banking authority regulates options or the international market. In addition, certain trades may occur in foreign markets in which there may be little or no governmental regulation of the trading. Neither PT,S.A or ICF is registered as a broker-dealer with any government agency nor have the options been registered with any governmental agency. PT,S.A and ICF are of a view that ultimate CLIENT profitability depends on fluctuations in world prices and not on the efforts of PT,S.A and/or ICF, and that each CLIENT individually owns the Commodity option thereby removing these vehicles from the definition of securities. CLIENTS are subject to the risks that PT,S.A’S and ICF’s business is not regulated by any regulatory agency and, thus, do not enjoy those protections which are inherent in a regulated business. Moreover, PT,S.A and/or ICF could become the subject of adverse regulatory actions or determinations by one or more governmental agencies or courts. At any given time, officers, managers, or agents, of the companies may have had previous regulatory sanctions by governmental agencies. Neither PT,S.A, ICF, or its officers, managers, nor agents are licensed with any governmental agency. Finally, there is a risk that a government agency could assume regulatory authority over PT,S.A, ICF or options, and that PT,S.A and/or ICF could not comply with the resulting regulatory scheme, and would have to cease doing business.
THE FOREGOING RISK FACTORS ARE NOT ALL INCLUSIVE. CLIENTS ARE URGED TO STUDY THE WORLD OPTION MARKET BEFORE DECIDING TO SPECULATE IN THESE MARKETS.