KID – CFD on Commodities

KEY INFORMATION DOCUMENT – CFD on Commodities

Purpose

This document provides you with key information about this investment product. It is not marketing material. The information is required by law to help you understand the nature, risks, costs, potential gains and losses of this product and to help you compare it with other products.

CFDs are provided by Monecor (London) Ltd,the product manufacturer, a company registered in England and Wales, number 00851820. ETX Capital is a trading name of Monecor (London) Limited which is authorized and regulated by the Financial Conduct Authority in the United Kingdom, register number 124721.Call+44 (0) 20 7392 1494or go to www.etxcapital.com for more information.This document was created/last updated on 1 April 2020..You are about to purchase a product that is not simple and may be difficult to understand.

What is this product?

A contract for difference (“CFD”) is a leveraged contract entered with ETX Capital. It allows an investor to speculate on rising or falling prices on an underlying commodity.CFD on a commodity is one of the contracts for difference product which ETX Capital offers and these are over the counter financial products in which orders are executed outside a trading venue such as a regulated market within specific trading hours.

An investor has the choice to buy (or go “long”) the CFD to benefit from rising commodity prices; or to sell (or go “short”) the CFD to benefit from falling commodity prices. The price of the CFD is derived from the price of the underlying commodity price, which may be either the current (“cash”) price or a forward (“future”) price. Price movements in the value of the underlying asset are measured in points.

 For instance, if an investor is long an oil CFD and the price of oil rises, the value of the CFD will increase – at the end of the contract ETX Capital will pay the difference between the closing value of the contract and the opening value of the contract. Conversely, if an investor is long and the cash price of oil falls, the value of the CFD will decrease – at the end of the contract they will pay ETX Capital the difference between the closing value of the contract and the opening value of the contract. A CFD referencing the underlying future price works in exactly the same way except that such contracts have a pre-defined expiry date – a date upon which the contract either automatically closes or must be rolled into the next period. The leverage embedded within all CFDs has the effect of magnifying both profits and losses.

Objectives

The objective of the CFD is to allow an investor to gain leveraged exposure to the movement in the value of the underlying commodity (whether up or down), without actually needing to buy or sell the physical commodity. The exposure is leveraged since the CFD only requires a small proportion of the notional value of the contract to be put down upfront as initial margin and is one of the key features of trading CFDs.

The cash CFD does not have a pre-defined maturity date and is therefore open-ended; by contrast, a future CFD has a pre-defined expiry date. As a result, there is no recommended holding period for either and it is down to the discretion of each individual investor to determine the most appropriate holding period based on their own individual trading strategy and objectives.

Failure to deposit additional funds in the case of negative price movement may result in the CFD being auto-closed. This will occur when losses exceed the initial margin amount. In the case of future CFDs, investors will be given the option to roll their existing contract into the next period – i.e., from a January expiry into a February expiry. Rolling is at the discretion of the investor but failure to do so will result in the CFD being auto-closed at the expiry date. ETX Capital also retains the ability to unilaterally terminate any CFD contract where it deems that the terms of the contract have been breached. A margin close-out protection is required for all retail investors, please see details below.

For more information and examples of the key features of trading CFDs please see the ETX website. https://www.etxcapital.com/.

Intended Retail Investor

CFDs are intended for investors who have knowledge of, or are experienced with, leveraged products. Likely investors will understand how the prices of CFDs are derived, the key concepts of margin and leverage and the fact that losses may exceed deposits. Indeed, they will understand the risk/reward profile of the product compared to traditional share dealing. Investors will also have appropriate financial means and the ability to bear losses in excess of the initial amount invested.

In times of high volatility and or macroeconomic uncertainty, asset values may fluctuate significantly and adversely affect an investor’s position. Such fluctuations can be even more significant in the case of leveraged products.

What are the risks and what could I get in return? 

Risk indicator

The summary risk indicator is a guide to the level of risk of this product compared to other products. It shows how likely it is that the product will lose money because of movements in the markets or because we are not able to pay you.

We have classified this product as 7 out of 7, which is the highest risk class. This rates the potential losses from future performance of the product at a very high level.

CFDs are leveraged products that, due to underlying market movement, can generate losses rapidly. Losses can exceed the amount invested and you may be required to deposit additional funds. There is no capital protection against market risk, credit risk or liquidity risk.The risks included in this paragraph are non-exhaustive and a comprehensive description of the risks involved can be found at ETX Risk Warning Notice.  www.etxcapital.com/en-gb/legal/risk-warning-notice. Losses may be incurred. Retail clients are subject to negative balance protection and your losses cannot exceed the amount invested.

Be aware of currency risk

It is possible to buy or sell CFDs on a commodity in a currency which is different to the base currency of your account.  The final return you may get depends on the exchange rate between the two currencies. This risk is not considered in the indicator shown above.

In some circumstances you may be required to make further payments to pay for losses.

Market conditions may mean that your CFD trade on a commodity is closed at a less favourable price, which could significantly impact how much you get back.  We may close your open CFD contract if you do not maintain the minimum margin that is required, if you are in debt to the company, or if you contravene market regulations. This process may be automated.A margin close-out protection is used to ensure that the retail investor’s net equity in their account does not fall below 50% of the margin required to maintain the retail investor’s open position.

This product does not include any protection from future market performance, so you could lose some or all of your investment.  If we are not able to pay you what is owed, you could lose your entire investment. However, you may benefit from a consumer protection scheme (see the section “what happens if we are unable to pay you”).  The indicator shown above does not consider this protection.

Performance scenarios

The scenarios shown illustrate how your investment could perform. The scenarios presented are an estimate of future performance based on evidence from the past on how the value of this investment varies and are not an exact indicator. What you get will vary depending on how the market performs and how long you hold the CFD. 

The following assumptions have been used to create the scenarios in Table 1:

For Example, if an investor buys 1 CFD of Cocoa with an initial margin of 10% and an underlying commodity price of 1358.00, the initial investment is £135.80. This has a notional value of the contract of £1,358 (1358 x 1). This means that for each 1 point change in price of the underlying commodity the value of the CFD changes by £1.  If the investor is long and the market increases in value, a £1 profit will be made for every 1 point increase in that market.  If the market decreases in value, a £1 loss will be incurred for each point the market decreases in value.

Commodity CFD (held intraday)

Index opening price:                                       P

1358.00

Trade size (per CFD):                                       TS

1

Margin %:                                                          M

10%

Margin Requirement (£):                               MR = P x TS x M

£135.80

Notional value of the trade (£):                    TN =  P x TS

£1358

Table 1

LONG

Performance Scenario

Closing Price (Inc. Spread)

Price Change

Profit/Loss

SHORT

Performance scenario

Closing Price (inc. spread)

Price Change

Profit/Loss

Favourable

1378.37

1.5%

£20.37

Favourable

1337.63

-1.5%

£20.37

Moderate

1364.79

0.5%

£6.79

Moderate

1364.79

-0.5%

£6.79

Unfavourable

1337.63

-1.5%

-£20.37

Unfavourable

1378.37

1.5%

-£20.37

Stress

1315.75

-5%

-£69.25

Stress

1425.9

5%

-£69.25

The figures shown include all the costs of the product itself. If you have been sold this product by someone else, or have a third party advising you about this product, these figures do not include any cost that you pay to them. The figures do not take into account your personal tax situation, which may also affect how much you get back. For more information and examples please see the ETX website.

What happens if ETX Capital is unable to pay out?

If ETX Capital is unable to meet its financial obligations to you, you may lose the value of your investment. However, ETX Capital segregates all retail client funds from its own money in accordance with the UK FCA’s Client Money  rules. ETX Capital also participates in the UK’s Financial Services Compensation Scheme (FSCS) which covers eligible investments up to £85,000 per person, per firm. See www.fscs.org.uk

What are the costs?

Trading a CFD on a commodity incurs one-off, ongoing, incidental and other costs. The following costs and charges will reduce any net profit or increase your losses:

This table shows the different types of cost categories and their meaning

One-off entry and exit costs

Currency conversion

Any cash,realized profit and losses, adjustments, fees and charges that are denominated in a currency other than the base currency of your account, will be converted to the base currency of your account and a currency conversion fee will be charged to your account. Clear Capital Markets will charge 0.05% of the notional value of the trade.

Ongoing costs

Daily holding cost

A fee is charged to your account for every night that your position is held.  This means the longer you hold a position, the more it costs.

Other costs

Rollover costs

We charge you to roll over a futures contract into the next month or quarter, equal to half the applicable spread to open and close a trade.

Incidental costs

Distributor fee

We may from time to time where permitted by applicable law share a proportion of our spread, commissions and other account fees with other persons including a distributor that may have introduced you.

How can I complain?

If you wish to make a complaint about Clear Capital Markets, you should contact our client services team on 0203 869 6080, or email compliance@clear-cm.co.uk. If our client services team is unable to resolve the matter you may refer it to our compliance department. If you do not feel that your complaint has been resolved satisfactorily, you are able to refer your complaint to the Financial Ombudsman Service (“FOS”). See www.financial-ombudsman.org.uk for further information. You can also refer to the European Commission’s Online Dispute Resolution Platform, however it is likely that you will be referred to the FOS.

Other relevant information

If there is a time lag between the time you place your order and the moment it is executed, your order may not be executed at the price you expected. Ensure your internet signal strength is sufficient before trading.

 The Legal section of our website contains important information regarding the terms and conditions relating to your trading with ETX Capital. You should ensure that you are familiar with all the terms and any other policies that apply to your account. www.etxcapital.com/en-gb/legal/customer-terms-and-conditions

The table shows the different types of cost categories and their meaning
Cash and Futures
One-off entry or exit costs
Spread
The difference between the buy price and the sell price is called the spread_ This cost is realised each time you open and close a trade_
Currency Conversion
Any cash. realised profit and losses. adjustments, fees and charges that are denominated in a currency other than the base currency of your account, will be converted to the base currency of your account and a currency conversion fee will be charged to your account
Cash and Futures
Incidental Costs
Distributor Fee
We may from time to time, after informing you, share a proportion of our spread, commissions and other account fees with other persons including a distributor that may have introduced you

How long should I hold it and can I take money out early?

CFDs on options are intended for short or longer term trading, in some cases intraday and could be suitable for long term investments. There is no recommended holding period, no cancellation period and therefore no cancellation fees. You can open and close a CFD on an option at any time during market hours.

How can I complain?

If you wish to make a complaint about Clear Capital Markets, you should contact our client services team on 0203 869 6080, or email compliance@clear-cm.co.uk. If our client services team is unable to resolve the matter you may refer it to our compliance department. If you do not feel that your complaint has been resolved satisfactorily, you are able to refer your complaint to the Financial Ombudsman Service (“FOS”). See www.financial-ombudsman.org.uk for further information. You can also refer to the European Commission’s Online Dispute Resolution Platform, however it is likely that you will be referred to the FOS.

Other relevant information

If there is a time lag between the time you place your order and the moment it is executed, your order may not be executed at the price you expected. Ensure your internet signal strength is sufficient before trading. The Terms and Policies section of our website contains important information regarding your account. You should ensure that you are familiar with all the terms and policies that apply to your account.