The risk of loss in trading commodity futures contracts 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:
(1) You may sustain a total loss of the funds you deposit with your broker to establish or maintain a position in the commodity futures market, and you may incur losses beyond these amounts. If the market moves against your positions, 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 positions. If you do not provide the required funds within the time required by your broker, your position may liquidated at a loss, and you will be liable for any resulting deficit in your account.
(2) 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 ("a limit move").
(3) Placing contingent orders, such as "stop loss" or "stop-limit" orders, will not necessarily limit your losses to the intended amounts, since market conditions on the exchange where the order is placed may make it impossible to execute such orders.
(4) All futures positions involve risk, and a "spread" position may not be less risky than an outright "long" or "short" position.
(5) The high degree of leverage (gearing) that is often obtainable in future trading because of the small margin requirement can work against you as well as for you. Leverage (gearing) can lead to large losses as well as gains.
(6) You should consult your broker concerning the nature of the protections available to safeguard funds or property deposited for your account. All of the points noted above apply to all futures 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:
(7) Foreign futures transactions involve executing and clearing trades on a foreign exchange. This is the case even if the foreign exchange is formally "linked" 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 complete enforcement of the rules of the foreign exchange or the laws of the foreign country. Moreover, such law or regulations will vary depending on the foreign country in which the transaction occurs. For these reasons, customer who trade on foreign exchange may not be afforded certain of the protections which apply to domestic transaction, including the right to use domestic alternative dispute resolution procedures. In particular, funds received from customers to margin foreign futures transactions my 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.
(8) Finally, you should be aware that the price of any foreign futures or option contract and, therefore, the potential profit and loss resulting there from, 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 MARKETS.
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