Funds & Day trading

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

Pension funds

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:

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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