Central Markets Full Risk Warnings Statement

Central Markets policy is that all clients should be provided with the following risk warning notices relating to Spread betting, Contracts for Differences (CFDs) and Foreign Exchange (FX).

Trading in spread betting, CFDs and/or FX is highly speculative, involves a significant risk of loss of invested monies and is not suitable for all investors.

This is because they are what is known as leveraged products. This means that you pay a small deposit to invest a much larger sum, often as much as 10 times your initial investment.

For example, you would pay £100 to invest up to £1,000. You can be, however, liable for the full £1,000 if the price goes against you.

Only those clients who:

  • Can afford to lose their full initial investment and possibly the FULL leveraged sum should consider investing;
  • Have sufficient relevant knowledge and experience of trading complex products and where they do not have derivatives experience are willing to learn prior to investing, should consider investing;
  • Are fully accepting of the risks associated with these products/services including the volatility of markets, the liquidity of trades and contingent liabilities.

Leverage and Gearing:

Leverage and hearings result in a high degree of risk for spread betting, CFDs and FX trading. Small price movements in the underlying asset can have a dramatic effect on your trade.

If the price moves in your favour, this can provide a positive return on deposit, however, a small price move against you may result in significant losses which could exceed the initial investment amount.

The greater the leverage, the greater the risk involved.

Margin requirements:

Where you have invested £100, no-one wants you to lose £1,000, there a margin requirement is placed on all accounts. Clients must maintain the minimum margin requirement on their open position at all times. For example, this means where you have invested £100, to prevent you losing more than this sum, a limit will be placed on your account of £150.

Clients may receive a margin call to deposit additional cash if the margin in the account concerned is too low (for example £10, if the margin reaches £110). Losses may occur if the position of a trade is closed due to not having enough liquidity for the margin on your account to maintain open positions, in this instance at £150. You would then lose £150.

This is to ensure that you do not find yourself liable for the full £1,000 you originally leveraged. However, if a transaction 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 the contract.

Risks associated with Long CFD positions:

Trading a CFD long means you are buying a position in the market with the view that the price will rise above the purchase price at the point of sale.

If the market price rises whilst you hold the position, generally you will make a profit. However, if the market price falls which you hold the position, you may suffer a loss.

Your potential loss may be larger than your initial margin deposited.

Risks associated with Short CFD positions:

Trading a CFD short means you are selling a position in the market with a view that the price will fall below the purchase price at the point of sale.

If the market price falls whilst you hold the position, generally you will make a profit. However, if the market price rises whilst you hold the position, you may suffer a loss.

Your potential loss may be larger than your initial margin deposited.

No rights to underlying assets:

Spread betting and CFD trades do not provide any right to the underlying instruments or assets, in other words, you do not own the share.

Currency risk:

Investing in FX and CFDs with an underlying asset listed in a currency other than your base currency entails currency risk when converting the trade back to the base currency, in the same way, that you can lose money when converting your holiday money.

Market liquidity:

Market conditions can change significantly in a very short period of time; it may not always be possible to close a trade under the same terms as it was opened.

Costs and charges:

All costs associated with transactions in spread betting, CFDs and/or FX should be explained and understood. You are liable for all associated costs with regards to your account.

Please see the costs and charges for further information.