Risk disclosure and trading information

Any kinds of stock exchange transactions are always subject to opportunities to make profits and risks of making losses. The following text informs you extensively about liabilities and risks.

Account and Asset Security


For AGORA direct™, security and financial stability are a central part of the company's philosophy. Therefore AGORA direct™ only accepts business partners for whom AGORA direct™ can assume that the partners also include security and financial stability at the core of their business philosophy in the interests of the customer.

Before you entrust your assets to a broker, you should ensure that it can survive even in poor economic times. The strong equity situation, the conservative balance sheet structure and automated risk control mechanisms of our broker partners protect you as our customer and us AGORA direct™ from far-reaching damage.


  • $10.01 billion in equity
  • $6.2 billion in excess regulatory capital
  • approx. $1.83 million in average income from transactions
  • over $156 billion in customer deposits,
  • more than 1,540,000 customer accounts

In detail: The IBKR broker association has over 985,000 customer accounts worldwide, including all AGORA direct™ customer accounts. An average of more than 1.5 million transactions are carried out every day. The volume includes total assets of more than 156 billion US Dollars. IBKR broker association equity is over 8.5 billion US Dollars. We are therefore convinced that AGORA direct™ customers are excellently positioned with their accounts.

The customer can rely to a great extent on the 5-pillar security. It offers the transnational protection that customers can expect for themselves. Customers from the EEA have to accept legal restrictions¹.

Note: All of the following currency information also applies of course to the respective equivalent in another currency, such as EUR, Swiss Francs, US Dollar, etc. For the purpose of determining a customer account, accounts with the same name and type are combined (e.g. John Doe's personal account1 and John Doe's personal account2 are considered to be one customer account), accounts of different types are not merged (e.g. John Doe's personal account1 and John Doe's company account1 are considered as two accounts).

This comprehensive, combined protection protects the securities accounts of the customers up to an amount of 30 million US dollars (including up to 1 million US dollars in cash). This protection is a combination of those described below five pillars.

The 5-pillar protection in detail:

Pillar 1- Segregated deposits

All customer funds are kept separately in special bank or deposit accounts, which are designed exclusively for the benefit of customers. This protection (the SEC uses the term “reserve”, the CFTC uses the term “segregation”) is a core principle of securities and commodities brokerage services. In using of a proper separation of client funds these are available for repayment to the customer (if there are no borrowed amounts of money/securities or future positions), in case the broker falls into arrears or becomes insolvent. A portion of client money is typically invested in US Treasury paper. According to the regulatory requirements of the CFTC, a part of the customer funds can also be invested in non-US government bonds, as is generally the case with other providers. But given the uncertainties and credit risks associated with sovereign debt, no client money is currently being invested in money market funds.

Pillar 2 - Fidelity Liability Insurance

The fidelity liability insurance of the Euler Hermes SA secures 50,000.00 Euro per individual insured event for Agora Trading System Ltd. This covers damage caused by misconduct by employees of Agora Trading System Ltd. which occur in accordance with the insurance conditions.

Pillar 3 - Protection by SIPC

Securities Investor Protection Corporation, SIPC

The SIPC pays for the first 500,000 US Dollars per customer (including cash up to 250,000 US Dollars).
These include stocks, bonds, government bonds, certificates of deposit, mutual funds, money market funds, and other investments. The market value of stocks, options, warrants, liabilities and cash (in all possible currencies) is protected by this insurance. The SIPC does not protect any commodity futures contracts / commodities (futures, futures options and single stock futures). However, in order to benefit to the maximum from the SIPC insurance in these cases as well, the cash available is periodically transferred from the futures account (Commodities) to the securities account (Securities) and thus the customer benefits from the SIPC insurance to the maximum.
The SIPC insurance offers protection against misconduct by a broker, but of course not against the loss of the market value of the investments made, i.e. products bought or sold.

The protection provided by the SIPC does not extend to so-called non-US index options and non-US index futures, as well as CFDs at any time. To ensure that these do not remain unsecured, an account regulated under British law is assigned to each trading account. The non-US index options and non-US index futures as well as CFDs are then traded separately via this UK-regulated account. As a result, the protection provided by the British FSCS deposit insurance takes effect. From this it follows a security for the UK regulated account of a maximum of 50,000.00 British pounds. Customers from the EEA have to accept legal restrictions¹.

Pillar 4 - Lloyds of London (Lloyd’s)

Lloyd's of London is a world leader in the insurance industry. Clients, who have full SIPC coverage, will receive an additional 29.5 million US Dollars (incl. cash up to USD 900,000.-) through Lloyd's police when required. This maximum amount is part of the comprehensive insurance limit of 150 million US Dollars.

Pillar 5 - Regulatory Equity/Rating

The IBKR Broker Association is rated "BBB+"; "Postive Outlook." The equity capital amounts to more than USD 9.0 billion, of which USD 6.9 billion are available as excess regulatory capital.

¹ Customers from the EEA are legally entitled to compensation of up to EUR 20,000.00, with a maximum of 90% of the deposit. Given the total capital of the IBKR brokerage association, which is 8.25 billion US Dollars and together with the strict margin guidelines that apply across all brokers, which include credit checks before an order is accepted and automatic account liquidations, who do not meet their margin requirements, it can be assumed that the security and stability of the assets of each individual client is consistently guaranteed. The IBKR broker associationvoluntarily holds an excess of its own capital (property) in separate reserve accounts to ensure that there is more than enough cash to protect all customers.

Current SEC regulations require that a detailed reconciliation of all client funds and securities be performed at least once a week to ensure that client assets are properly segregated from the broker's own funds. In order to protect customers' assets even better, the IBKR broker association has requested and received approval from FINRA (Financial Industry Regulatory Authority) to perform and report client asset reconciliation on a daily basis. IBKR broker association started these daily calculations in December 2011, along with daily adjustments to the funds that are securely held in custody for clients. The fact that the accounts are not only balanced weekly, but daily, is just one of many examples of efforts to offer customers the best possible protection.

Addresses and further information

 Information about the CFTC

The CFTC - US Commodity Futures Trading Commission, based in Washington, DC, is an independent US authority and regulates the futures and options markets in the US. For more information about the CFTC and answers to frequently asked questions, please visit: or Address: CFTC, Three Lafayette Center, 1155 21st Street, NW, Washington, DC 20581 - Phone: +1 (202) 41 85 00 0

 Information about the SIPC

The SIPC is a non-profit membership association funded by brokers who are members of the SIPC. More information about the SIPC and answers to frequently asked questions, please contact: or

Address: SIPC, 805 15th Street, NW, Suite 800, Washington, DC 20005-2215 -

Phone: +1 (202) 37 18 300

Information about the FSCS

FSCS-Financial Services Compensation Scheme is the UK's deposit insurance scheme. For more information about FSCS and answers to frequently asked questions, please visit:

Address: FSCS, 10th Floor, Beaufort House, 15 St Botolph Street, London EC3A 7QU -

Telephone: +44 (020) 77 41 41 00

Information on Lloyds of London

Lloyd's of London Insurers is one of the oldest and global leaders in the insurance industry. For more information about Lloyd's and answers to frequently asked questions, please visit:

Address: Society of Lloyd's, One Lime Street, London, EC3M 7HA, UK

Telephone:+44 (020) 73 27 10 00

FINRA (Financial Industry Regulatory Authority)

As the licensing authority in the USA, FINRA is primarily responsible for the supervision of persons and companies involved in the securities industry. The SEC (Securities and Exchange Commission) delegated this responsibility to FINRA. For more information on FINRA and answers to frequently asked questions, please visit:

Address: FINRA 1735 K Street, NW, Washington-DC 20006

Telephone: +1 301-590-6500

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 64% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money.

Information about risks with futures transactions (futures and options)

Futures transactions are not traditional capital investments, but highly speculative transactions. The risks of suffering losses are high up to and including total losses and beyond. Ongoing obligations may accrue too. Your orders to trade in futures transactions can therefore only be traded after you have received thorough information about the risks. Please ensure that you are aware of the circumstances of futures transactions and how they work. Particularly take note of the risks arising from the costs, as they may exclude any opportunity of making a profit.

List of contents:

  1. General market or speculation risks, particularly with futures transactions
  2. More detailed basic information about risks with futures transactions
  3. Increasing the risks because of transaction costs
  4. Special risks with share options
  5. Special risks from contract partners
  6. The inevitability of risks

1. General market or speculation risks

1.1. Risk of making a complete loss

The temporary rights acquired in conjunction with this business may expire (risk of making a complete loss) or suffer a loss in value. Futures transactions are temporary in nature. The development desired by the investor must take place within a restricted period (so-called term). Therefore, take note of the term of any futures transactions. A complete loss and the expiry of a futures transaction at the end of the term is not an exception at all.

Certain obligations may accrue with particular futures transactions and they go far beyond the investment and the normal assets of the investor and may even include private bankruptcy. We are therefore not talking about traditional capital investments here.

1.2. Risk of losses when purchasing options

The risk of making a loss when purchasing options exists in the options premium that is paid and the transaction costs that are incurred. A complete loss occurs if the option expires at the end of the term. Partial loss occurs if the option does not develop in line with expectations and is then sold without having reached the profit zone.

1.3. Risks of making losses with futures transactions and when selling options (covered option transactions)

In the case of futures transactions and when selling options, the risk of making a loss cannot be determined in advance and may go far beyond the securities that may have been put in place. If a customer does not provide these other securities when requested to, he must expect his open futures transactions to be closed immediately and the immediate use of the securities already made available. Any losses that then occur may lead to additional debts and therefore involve the remaining assets up to and including private bankruptcy.

A loss, which cannot be determined in advance, also occurs if the future is evened up by a counter-transaction without the profit zone having been reached or if a counter-transaction cannot take place to even things up. If there is no counter-transaction, the speculator must then meet the obligation arising from the futures transaction at the time determined in advance: he must accept this and pay for this if the basic value owed has been sold. The costs of intermediate storage for goods until their successful onward sale may also increase the losses. With a future that involves the sale of the basic value owed, there is an obligation to provide the basic value owed. The speculator must cover himself in some other way with the basic value (with the same quality). These purchasing costs increase losses and cannot be determined in advance.

1.4. Spread or combined transactions

So-called spread or combined transactions are not necessarily less risky than individual items.

1.5. Risk of the supply

If a futures transaction is exercised, there may be an actual physical delivery of the basic value required, to which the futures transaction relates. In this case, the conditions of this market must be heeded. Any onward sale of the goods may only be difficult in certain circumstances and involve high costs.

1.6. Stop orders

It may not be possible to activate any transactions, which are supposed to exclude or restrict the risks arising from futures or share transactions (e.g. stop orders), or only at a market price that would entail losses. This is particularly true of so-called loss restriction orders (stop orders).

2. More detailed basic information about risks in futures transactions

2.1. Basic elements about the risks of making losses with futures transactions

The rights, which you acquire through futures transactions, may expire or lose in value, because the transactions always only acquire temporary rights – so there is a risk of expiry or a loss in value. The shorter the deadline, the greater the risk can be.

Incalculable losses

In the case of liabilities arising from futures transactions, your risk of making a loss may be indefinable and also cover your other assets and go beyond the securities that you have provided.

A lack of opportunity to safeguard matters

It may not be possible to activate any transactions, which are designed to exclude or restrict risks with futures transactions, or they only be available at a price that brings you a loss.

Loan risk

Your risk of making a loss increase if you take out a loan for your futures transaction.

Currency risk

In the case of a futures transaction, where your obligations or claims are made in a foreign currency or different accounting unit, there is an additional risk of making a loss as a result of currency fluctuations.

2.2. The risks with individual types of transactions

2.2.1. Purchasing options Purchasing an option on securities, foreign exchange or precious metals

The transaction: If you purchase options on securities, foreign exchange or precious metals, you acquire the claim to delivery or acceptance of the quoted basic values at a price that is set for purchasing the option.

Your risk: Any change in the market price of the basic value (e.g. the shares) may reduce the value of your option: in the case of a purchase option (call), in the case of a sales option (put) if the market value of the subject of the contract increases in value. A reduction in value takes place in a manner that is disproportionate to the change of the market value of the basic value – up to and including the total loss in value for your option. Even if the market price of the basic value does not change, the value may diminish, because it is affected by other price formation factors (e.g. term or frequency and intensity of the price fluctuations in the basic value). Because of the restricted term of an option, you cannot rely on the fact that the price of the option will recover again in good time. If your expectations regarding market developments do not come true and you decide not to exercise the option or miss the opportunity to do so, your option will expire with the expiry of the term. Your loss will then consist of the price paid for the option (the option premium) plus the transaction costs that arose for you. Purchasing an option on financial futures contracts

The transaction: When purchasing an option on a financial futures contract, you acquire the right to conclude a contract with conditions that are set in advance and this obliges you to buy or sell e.g. securities, foreign exchange or precious metals on a set date.

Your risk: Even this option is subject to the risks described in After exercising the option, you are subject to new risks: they are governed by the financial futures contract that has been agreed and may go far beyond your original investment (i.e. the price paid for the option). You then face additional risks arising from the futures transactions described below, which have to be met on a set date.

2.2.2. Selling options and futures transactions, which have to be met on a set date on a set date and selling a purchase option on securities, foreign exchange or precious metals

The transaction: As a seller on a set date, you take on an obligation to supply securities, foreign exchange or precious metals at an agreed purchase price. As the seller of a purchased option, you only face this obligation if the option is exercised.

The risk: If the market prices increases, you must still deliver at the price set earlier, which may significantly be below the current market price. If the subject of the contract, which you have to supply, is already in your possession, rising market prices will no longer benefit you. If you wish to purchase it later, the current market price may be significantly above the price set in advance. Your risk lies in the price difference. This risk of making a loss cannot be determined in advance, i.e. is theoretically unlimited. It may go far beyond the securities, which you have provided, if you do not own the item to be delivered, but only wish to buy it when it is due. In this case, considerable losses may accrue for you, as you may have to make your purchase at very high prices, depending on the market situation, or have to make compensation payments if it is not possible to purchase the item in advance.

Please note: If you own the item that is the subject of the contract, which you have to deliver, you are protected from any losses regarding future purchases. But if these values are completely or partially blocked for the term of your futures transaction (as securities), you cannot access them during this time or to even out your futures contract and not sell the values either in order to prevent losses if the market prices fall. Purchasing on a set date and selling a sales option on securities, foreign exchange or precious metals

The transaction: As a purchaser on a set date or as a seller of a sale option, you have to accept securities, foreign exchange or precious metals at a set price.

Your risk: Even if the market prices fall, you have to accept the purchase item at the agreed price, which may then be considerably higher than the current market price. Your risk lies in the difference. This risk of making a loss cannot be determined in advance and may go beyond the securities that you have provided. If you intend to sell the values after accepting them immediately, you should note that you may find it difficult to find a buyer or not find one at all, depending on how the market has developed. Selling an option on financial futures contracts

The transaction: When selling an option on a financial futures contract, you have to conclude a contract at conditions fixed in advance and you are then obliged to purchase or sell e.g. securities, foreign exchange or precious metals on a set date.

Your risk: If the option that you purchased is exercised, you run the risk of being a seller or purchaser on a set date, as described in sections and

2.2.3. Option and financial futures contracts with margin compensation

The transaction: In the case of many futures transactions, cash compensation is the only thing available. This particularly applies to:

  • Option or financial futures contracts at one index, i.e. with one variable, which is calculated from a set portfolio of securities according to particular criteria and its changes reflect the movements in market prices for these securities.
  • Option or financial futures contracts on one interest rate for fixed-term deposit with a standardised term.

Your risk: If your expectations are not met, you have to pay the difference, which exists between the market price that formed the basis at the time of the contract and the current market price when your transaction become due. This difference makes up your loss. The maximum amount of your loss cannot be determined in advance. It may be far beyond the securities that you have provided.

2.3. Other risks from futures transactions

2.3.1. Futures transactions with currency risk

The transaction: If you enter a financial future contract, where your obligation or the counter-performance that you claim takes place in a foreign currency or accounting unit or the value of the subject of the contract is determined by this (e.g. gold), you are exposed to an additional risk.

Your risk: In this case, your risk of making a loss is not only coupled to the development in value of the subject of the contract that forms the basis here. Developments in the foreign exchange market may also be the cause of additional incalculable losses. Fluctuations in exchange rates can:

  • reduce the value of the option acquired
  • make the subject of the contract more expensive, which you have to deliver to fulfil the financial futures contract if it has to be paid in a foreign currency or accounting unit. The same applies to a payment obligation arising from the financial futures contract, which you have to make in a foreign currency or accounting unit
  • reduce the value or the sales revenue of the subject of the contract to be accepted from the financial futures contract or the value of the payment received
2.3.2 Transactions excluding or restricting risks

Do not rely on the fact that you can conclude transactions at any time during the term, through which you can compensate for or restrict the risks arising from the futures transactions. Whether this option exists depends on the market circumstances and also on the type of your financial futures contract. It may be true that you cannot complete a relevant transaction or not at a favourable market prices – leading to losses for you.

2.3.3 Making use of loans

Your risk increases if you particularly finance the purchase of options or the fulfilment of your delivery or payment obligations arising from futures transactions through a loan. In this case, you have to not only accept the loss if the market develops against your expectations, but also pay interest on the loan and pay it back. So never rely on the fact that you can pay the interest on the loan and pay it back from the profits of your futures transactions, but check your economic circumstances before agreeing to the transaction to see whether you are able to pay the interest and possibly pay off the loan at short notice, if losses accrue rather than profits. Futures transactions are not suitable guarantees for taking out loans and should not be financed with loans.

2.4. Providing security with securities

The risks arising from the transactions mentioned above do not change if the rights and obligations are secured by securities (e.g. option certificates).

3. Increasing the risks because of transaction costs

3.1. Negative effects of costs

Transaction costs for private speculators are not taken into account when the stock exchange experts set the price. The costs for our activities have a negative effect on the financial results of the transactions and increase the general risk of futures transactions. You can see our costs in the fees agreement. All the fees impair the opportunities of the transaction, as the costs have to be earned again through the appropriate development in market prices in favour of the customer in the market place. The development of market prices required for this is above the scale of the development of market prices, which stock exchange experts consider to be realistic.

This is particularly the case with futures transactions. The investor must take into account that in the price, which the stock exchange participants grant for an investment object, the opportunities are taken into account too. The stock exchange price therefore denotes the framework for a risk area, which is viewed as reasonable for the investment transaction by the market. The stock exchange price therefore equals the value of the opportunity of making a profit, which is granted to the investment object. In the case of options, e.g. the stock exchange premium denotes the value of the opportunity of making a profit and the scale of the risk area, which are granted to the option in the view of the stock exchange participants. Specialist stock exchange traders, whose estimates form the prices and the stock exchanges and futures markets, do not take into account the transaction costs for private speculators. The price formation on the markets therefore only reflect the opportunities and risks in a form that is still reasonable for professional traders. These costs are not taken into account by specialist stock exchange traders in this estimate.

Any costs charged therefore change the already speculative estimate of the professional market participants, as reflected in the stock exchange price, unilaterally to the detriment of the speculator. The assessment and the fundamentals of the futures transactions therefore fundamentally change due to the costs. A far higher price fluctuation is therefore necessary than the already speculative expectations granted by the professional stock exchange traders because of the costs of obtaining profits. The higher the transaction costs, the lower the opportunities of making any profits, until they disappear completely. If you engage in repeated speculation and are successful in the early stages, in the end you must assume that a complete loss will occur. Even if you obtain positive results in the initial transactions, the risk of making a loss increases with every ongoing transaction for the investor. Overall, it should be said that most investors in these markets make a loss.

3.2. Special risks because of high costs – poor prospects in the transactions

These risks become even more severe if the share of the costs is particularly high. You can assume that the costs will be particularly high if costs are incurred, which amount to more than 5% of the net investment. If high costs are incurred, they practically exclude the possibility of you making a profit in the transaction. It is completely improbable that the transaction, which forms the basic business, will be able to develop in such a way that is necessary in order to achieve any profits in the end. The statements on the effects of costs therefore need to be heeded particularly carefully. Otherwise, you face the possibility of making a complete loss.

3.3. Effects of our costs

We charge commission amounting to an absolute sum for our work and this is incurred for each contract individually. A transaction may cover several contracts and commission is payable for each one. The price of an option, the premium, however, has a different amount, depending on the circumstances of each option. The commission that we charge may well account for more than 5% of the pure option premium and therefore be viewed as high costs. In the case of other futures transactions, like futures or sold options, this may also be case taking into account the net expenditure required there. The transaction costs to be paid (e.g. commission/brokerage fees, commission, payments) may possible be greater in the case of options with a lower premium (e.g. options involving money and/or a short residual term) than the premium needing to be paid. You therefore need to take account of the costs and consider whether the transaction makes sense in the light of the costs.

3.4. Increase in costs because of other financial service companies involved

If you engage other financial service providers (e.g. advisers), other costs may be incurred. These service providers charge their own costs, which first have to be earned. This needs to be taken into account in assessing the cost-effectiveness of the transaction.

3.5. Increase in the risk with initial losses and excluding the possibility of making any profits

If the first investment incurs losses, an extraordinarily high price movement in the starting price in a futures transaction is necessary just to reach the financial starting point again. It is completely uncertain whether these kinds of price movements will occur during the term of these transactions. If there are any further losses, and any follow-up transactions, the market movements required to achieve a positive result in terms of your balance increase to a degree that not only excludes the possibility of achieving a positive result at the end of your speculation, but automatically leads to losses. If initial losses occur, you can normally assume that there will be a loss at the end.

3.6. Increase in the risk through a high number of transactions (excessive charging of commission)

If the payment depends on the transaction, there is a conflict of interests between the financial service provider and customer, as the financial service provider earns with each transaction. He or she is therefore interested in trading as many transactions as possible. He or she may then be tempted to perform as many transactions as possible in the interest of earning a lot of money without taking into account the customer’s interests, even if they make no sense for the customer. Transaction costs may be too high in absolute terms in relation to the market investment or relatively so because of frequent, economically senseless entry and exit manoeuvres into and out of transactions (excessive charging of commission, “churning”).

This may have its origin in one-sided information provided by the customer with preference for the commission interests of the financial service provider, who receives a share of the commission. But it is also possible that e.g. loss restriction measures have been calculated too low for the expected fluctuations in prices for the transaction (e.g. stop orders). This may lead to hectic entry and exit measures, with the result that costs are repeatedly incurred and they consume the capital that has been invested without major losses having occurred on the basis of changes in the markets. This effect is particularly felt with low option premiums, as the costs are then relatively high proportionately. These kinds of cases mean that there is no change of making a profit and losses are predestined as a result of the transaction costs. This risk may also occur if you always follow the suggestions and advise of a third party, e.g. us as your supporting financial service provider when making your trading decisions. You should take into account this risk when making your trading decision and making use of suggestions. Please note that this conflict of interest also occurs with us on the basis of payments dependent on transactions.

3.7. Risk with reimbursements

If the financial service provider receives reimbursements from a different company, there is initially a risk that it will not search for or arrange the investment, which would be the best for the customer, but an investment, which attracts the highest reimbursement levels. There is also a danger that the financial service provider will charge excessive commission if the reimbursements depend on the amount of transactions.

4. Special risks with share options

In the case of share options, there are some special features and differences to futures transactions with other underlying values. A share option always relates to a particular share. The data on the share and its earnings (dividends) must therefore be taken into consideration and whether the underlying value is just a second-line stock or a standard value. The company data of the public limited company and its development should be taken into consideration. Any news about the company may have long-term effects on the options and their shares. The price formation of the share option is largely determined by the price formation of the share in question. If the share price changes, there may be disproportionate changes to the option price. You should be aware that, when exercising a purchase option, you may also come into possession of the physical shares. A sale of the shares may be made harder because of a tight market and/or associated with losses.

5. Special risks arising from contract partners

5.1. No risk minimisation by the supervisory body

The supervision provided by the FCA, or by the BaFin (German supervisory body), or by any other supervisory body does not exclude or reduce the risks arising from the transactions or their performance. They continue to be present.

5.2. Risk of applying foreign law

The transactions are often traded by an institute managing the account abroad or using the involvement of a foreign financial services provider from the customer’s point of view. This may mean that you have to assert claims in line with a legal system that is foreign to you and protective measures in your domestic laws may possibly not be effective.

6. Inevitability of the risks

The risks with futures transactions are considerable. They exist in each case, even if you perform the transactions through us. Risks cannot be excluded by advice from financial service providers or through any technical equipment or through computer programmes. If anybody asserts the opposite, this is not correct. If you still wish to trade in futures transactions, you must be aware of these risks.


Information about risks

Trading in securities (funds and day trading)

Risks mean that it is possible that the future profits from an investment differ from the value, which capital investors expect on the basis of the information that they have available. Risks are therefore a measure of the certainty that particular profits will ensue. A difference is made here between specific and non-specific risks.

Non-specific risks

Non-specific risks only relate to one investment. Depending on the type of fund, the following risks mentioned below may occur.

Specific risks

The specific risk not only concerns the individual security, but always a complete category of investments (e.g. shares, bonds). Depending on the type of fund, the following risks may occur:

The market value and yields from securities forming the basis for an ETF may fall and rise – and therefore the value and yields from an ETF may do the same. It is therefore possible that investments do not receive back the complete amount of their investment in ETFs when selling them. The performance of the ETF may also be negatively affected by different outside factors, for example, through changes in the economic and market-induced conditions, uncertain political developments, changes in government strategies and legal, tax or supervisory requirements. The performance of an index in the past does not necessarily dictate its future development.

Risk information for funds / ETFs (Exchange Traded Funds) traded on the stock exchange

Share and pension funds

  • Economic risks: They are mainly of a macro-economic nature and cannot be analysed in isolation from political risks. They particularly result from the structure of the economy in question and its type of involvement in the international economy. They are particularly felt from a financial point of view in exchange rate risks and transfer risks, which may hinder the international payments and the movement of capital or completely paralyse them. The latter are confronted by foreign exchange controls, restrictions on the movement of capital and in extreme cases by the “freezing” of accounts by foreign business partners.
  • Liquidity risks: It is possible that, at the time when a share or a bond are to be sold, there is no demand for any purchases in the market. The sale may not take place at all or involve major markdowns. This risk can be neglected in markets with a huge market volume; but it may exist in small markets or in the case of exotic bonds.
  • Event risks: The event risk is a possible change in the debtor’s risk profile because of unforeseen events. They include e.g. company takeovers or credit defaults by debtors. Event risks may affect the credit rating of a company either negatively or positively.

Pension funds

  • Credit worthiness risk: The risk of insolvency or a lack of liquidity by the debtor (issuer). This may involve a temporary or final inability to meet interest and/or repayment obligations at the right time. Alternative terms for the credit worthiness risk are the debtor or issuer risk
  • Termination risk: The issue conditions, which are contained in the issue prospectus (sales prospectus), the debtor of a bond may reserve a premature right of termination. Bonds often attract high interest phases with this kind of termination right. If the market interest rate drops, the risk for the investor increases that the issuer may make use of his or her right of termination.
  • Premature redemption risk: Redemption bonds, which are paid back according to a redemption procedure, are associated with particular risks. Particularly the uncertainty about their mathematical term in the case of these redemption bonds can lead to changes in profit levels. If investors buy a bond at a market rate of 100 percent and the redemption of the securities takes place at part at an unexpectedly early time because of premature redemption, the earnings decline for the investor as a result of this reduction in the term.
  • Interest change risk: This risk is the result of the uncertainty about future changes in the market interest rate. The purchaser of a security with a fixed interest rate is exposed to an interest change risk in the form of a price loss if the market interest rate increases. The non-specific risks can be minimised by investing in ETFs, which contain many different securities. The specific risk particularly with national or sector ETFs, still remains, however.
  • Specific risk: The specific risk not only concerns an individual security, but also a complete category of investments to the same degree (e.g. shares, bonds). Depending on the type of fund, the following risks may occur: a general market risk – the market value and yields of securities forming the basis of an ETF. It is therefore possible that investors do not receive back the complete amount of their investment when selling it. The performance of the ETF may also be negatively affected by changes in the economic and market-induced conditions or because of uncertain political developments, changes in government strategies, legal, tax and supervisory law requirements. The performance of an index in the past does not dictate its future development.
  • Country risk: These are risks which arise from uncertain political, economic and social circumstances in a different country. Political risks arise from the domestic and foreign policy situation in the country concerned. Domestic political risks are the results of ideological disputes by the country’s parties, social unease, state administrative bodies that are incapable of operating and weak governments. On the other hand, foreign policy risks arise from membership of political alliances and/or the hostile/unfriendly behaviour of other countries towards the country in question
  • Specific country tax treatment: The tax treatment of the investment in ETFs may be different from one country to another. Investors are recommended to obtain information from their own independent tax advisors.
  • Exchange rate risks: Exchange rate risks arise for investors with a different national currency to the euro and in those cases where investments were acquired in other currencies than the euro.
  • Risks in the development of the secondary market: Permanent listing on a stock exchange is not guaranteed.
  • Investment goal risk: There can be no guarantees that the investment goal, which is the exact 1:1 imitation of the index in question, will be achieved. Firstly, management fees may cost a few base points and can therefore have a negative effect on the market price of the ETF. Secondly, the change that the index will differ is greater than when investing the complete mapping when using the random sample method for index mapping.
  • Index risk: The index risk consists of two components: firstly, there are no guarantees that the mapped indices will be computed in the same way in future too. Secondly, the pooling of the index may pose a risk too. This could concern the selection of individual securities and the weighting of some sectors. On some indices, the companies involved are weighted according to market capitalisation; on others, the weighting is the same. The former is risky because of pro-cyclic behaviour by the index fund. Before a security is accepted into an index, it must have achieved a certain level of market capitalisation, which is a consequence of a company’s successful work. Success can therefore only be assessed when looking to the past and it is possible that the share’s high price will soon come to an end.
  • Correlation with sector ETFs: All the companies in a sector ETF are active in the same sector at the time when they are accepted. The share prices of these companies my therefore be more highly related than those of companies, which are selected according to a different investment strategy – e.g. according to their geographical region or a more widely spread division of sectors. The question about the correlation of sector indices plays a role that should not be underestimated. Because the range of investments is more restricted and therefore more volatile, the opportunities for yields – but also the risks – may be considerably greater. The diversification effect is largely neutralised by focusing on just one sector. This effect increases, if some companies have a strong market position within one sector and their weighting within the index is therefore very high. For example, the weighting of the Finnish mobile phone giant Nokia accounted for more than 35 percent of just 23 securities in the DJ STOXX®600 Technology Index (in August 2007). The correlation would then have a negative effect if the Nokia shares gave ground by several percentage points for individual reasons. This change in market prices would have a negative effect on the whole index because of the strong weighting.
  • Risk of ETF closures: As has already been mentioned, it is possible that an ETF may not be permanently listed on a stock exchange. It is possible that too few funds flow into an ETF. If the costs of the issuing company are no longer covered by the management fee, e.g. for marketing, administration and licence fees, it is possible that the issuer will close these ETFs. If a fund is closed, the capital, however, is in no way lost. Either the ETF is purchased back at its net inventory value and the current value is paid out in cash, or the invested amount is transferred to a different ETF in the same company at the request of the investor free of charge.

Risk information for trading in shares, particularly in the case of so-called “second-line stocks”

Principle: A share investment is a speculative risk investment with significant risks of making losses. A share investment provides a holding in a company. A shareholder is not the company’s creditor, but has a holding in it. He or she therefore has rights, but also risks. The value of the share depends on the company’s development (risk of company holdings). The company’s risks lie in the general development of the company (economy) and the special situation faced by the company, which has to assert itself in the market place. The company’s success affects the value of the share. If the company develops in a very negative manner (insolvency), the risk exists of making a complete loss.

In the case of specific values and innovative values, the company is often only working in a very narrow area, is new in the market place and risk of taking a holding is greater. It is hard to predict whether success will ensue or not and this depends on many factors. The companies often do not have any history or successes in the past. The issuer risk is therefore higher.

In the case of second-line stocks and open-market securities, there are additional considerable risks:

  • Restricted trading capacity: the market liquidity of second-line stocks is often so low that it is impossible to sell shares or only very difficult to do so.
  • Risk of price formation and market prices: In the case of second-line stocks, the market situation is often tight and there is little liquidity. Prices here are often only set and no actual market agreements exist, i.e. based on bidding and asking. The spread between the purchase price (the so-called bid or bid price) and the sale price (the so-called ask or ask price) is often very high with these securities and is arbitrarily set by the so-called market makers. The spread represents an automatic loss. No fair price formation is guaranteed. The investor risks acquiring second-line stocks at high arbitrary prices, even if they are purchased through a stock exchange (the SWB Stuttgart and FWB Frankfurt pseudo-stock exchanges) – however as soon as the interest by the person responsible for the issue or their sale declines, the prices will collapse and there is no possibility of selling them any longer.
  • Risk of abuse/manipulation: The over-the-counter-markets (OTC/Pink sheet/Stuttgart etc.) have one thing in common: the price formation is strongly dependent on just a few special participants. Their behaviour determines the market events. The lack of any normal bid and ask situation or any general interest and the influence on the prices of just a few people as a result provides an opportunity and increases the probability that prices will be manipulated to the detriment of investors.
  • A lack of information and a monopoly on information: Second-line stocks are often unknown and are rarely considered in the stock exchange press. It is often extremely difficult to assess the share and obtain information. You are largely dependent on the company itself.
  • High market price fluctuations: In the case of second-line stocks, there are often high market price fluctuations and sudden slumps in prices
  • Inflow of funds: The purchase price goes to the seller, not the company. It does not increase the value of the company.
  • Purchase outside the stock exchange: When orders to sell or buy shares are handled outside the stock exchange and not through one, they are traded outside the stock exchange by a financial services provider, who brings together the purchaser and seller. These orders cannot therefore be considered by stock exchange participants setting the price at a stock exchange.
    The investor therefore has no opportunity of achieving a better price by conducting the order through the stock exchange. He or she may not benefit from the protective measures either, which would come into play with a stock exchange trade. These points apply, regardless of whether the order is traded at the market prices listed at the stock exchange or not. The investor must also ensure that he or she affects the stock exchange prices through any order, particularly with shares that are in short supply, and may possibly trigger a movement in the market prices to their detriment. The investor must therefore carefully consider, whether they wish to trade at a stock exchange or away from one.

Day trading

Particular risks with frequent account movements, so-called “day trading”

The trading intention that is mentioned above may contain the possibility of performing futures transactions (options and/or futures) by using a trading system, which enables market participation in the form of day trades or overnight trades. It is possible that several purchases and sales take place in the same market during one trading day. This kind of process contains considerable risks, which you need to be aware of once again.

In the case of day trades, customers often hold market position for a very short time. A position opened is closed on the same day with so-called day trades. It is possible here that a corresponding position is opened again on the same day and traded several times during the day in this market. In the case of overnight trades customer close purchased positions on the next day again. The key feature of this kind of trading is that the customer is only active in the market for a short time. Day trades or overnight trades, however, are not any less risky than futures transactions, which customers leave in the market place for longer.

If this type of process involves short-term trading, it entails a number of transactions. The commission charged is incurred for each transaction.

If a number of transactions are traded (and this is usually the case with short-term trading), there is a high degree of costs compared to the capital that is invested.

This level of costs may cause the customer’s capital to be eaten up by the commission incurred (trading commission, transaction costs). This is particularly the case if the market does not provide any or only slight fluctuations in market prices so that the yields achieved do not cover the commission when realising a position. If you do not just conduct day trading transactions with your own capital, but take out loans to do so, please note that the obligation to repay the loans still exists for day trading, regardless of how successful you are.

When conducting these kinds of transactions, please note that day trading may lead to immediate losses, if surprising development create a situation where the value of the financial instruments that you have bought fall on the same day and you are forced to sell the security that you have bought at a price below the purchase price before the end of the trading day. This risk increases if you invest in securities which are expected to be subject to major fluctuations within a trading day. In certain circumstances, the complete capital that you have invested in day trading may be lost.

Otherwise, you are competing with professional and financially strong market participants in attempting to make gains using day trading. You should therefore have an in-depth knowledge of securities markets, securities trading techniques, securities trading strategies and derivative financial instruments. In the case of futures transactions, there is also the risk that you will have to obtain additional capital or securities. This is the case if losses are incurred on the same day, which go beyond the invested capital or the securities that you put aside.

The customer should be particularly clear about this if they allow a business agent, i.e. a portfolio or administrative manager, to conduct these kinds of transactions and need to pay them for this service. In the case of short-term trading, a conflict of interests can easily arise between the portfolio or administration manager and the customer. This occurs if the remuneration for the portfolio or administration manager depends on the turnover. The so-called round turn commission is incurred with each transaction. The portfolio or administration manager may be interested in conducting as many transactions as possible – and the round turn commission is liable for payment for each of them. Our remuneration too (cf. trading fees) depends on the number of traded positions, so that what is mentioned above is true of us too, even if we do not have any influence on your trading activities.

The risk regarding the portfolio or administration manager is particularly present if you give your portfolio or administration manager a free hand in managing your investment and/or grant him or her authority to use their discretion (externally administered account), as they can then act as they see fit and can only explain the transactions with hindsight.

A similar problem can occur with stop orders that are too tight, if the position is automatically evened up when a particular price has been reached, which is always reached in normal day trading.

You should therefore regularly check your account with regard to the ratio between transaction costs and the capital being invested and the type of transactions being performed. You should take note of whether the results in your account are mainly determined by market results or the cost of commission.

If special premises are made available to handle day trading business, the close proximity to other investors in these trading rooms may influence your behaviour.

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