Trading Options for Retail Investors

 

PC Freedom Finance Global PLC (hereinafter referred to as the "Company", the "Broker") hereby notifies you of the following specifics of concluding transactions that are derivative financial instruments (hereinafter referred to as "PFI Transactions").

When making transactions that are derivative financial instruments (derivatives), including options, the investor bears not only the general risks associated with transactions in financial markets (systemic, banking, operational, technical, market, currency, issuer risks, etc.), but also the specific risks associated with the characteristics of derivatives financial instruments. For example, in addition to the general market (price) risk, an investor, in the case of sending a Broker an order to make a transaction with a derivative financial instrument, will bear both the risk of an adverse change in the price of financial instruments that are the underlying asset of a derivative financial instrument, and the risk of assets that serve as collateral for the relevant derivative financial instruments. Changes in the market indicators of the underlying assets and their economic effect on the investor's financial result from PFI Transactions cannot be predicted with a sufficient degree of reliability. More detailed information about the risks associated with the implementation of PFI Transactions can be found in the Declaration on the Risks associated with operations on the securities Market in Appendix 4 to the Regulations on the Provision of Brokerage (Agency) Services on the securities Market of the Company, as well as in information materials posted on the websites of exchanges, trading platforms and clearing organizations., where transactions with exchange-traded derivative financial instruments are concluded and executed.

The terms of PFI Transactions do not contain guarantees of a certain profitability. The broker does not guarantee that making a PFI Transaction will ensure that the investor receives income or achieves the desired financial result from the relevant transaction. The Broker makes no statements, makes no representations or guarantees, and assumes no responsibility regarding the actual achievement by the investor of specific financial results or other goals, intentions or expectations of the investor in connection with the execution of PFI Transactions. Even if making transactions with derivative financial instruments of PFI Transactions leads to a positive or expected result, the financial result of the investor from making such a transaction may be significantly lower than the financial result that, all other things being equal, the investor could receive as a result of making transactions directly with the asset, which is the underlying asset of the derivative financial instrument. In addition to changes in the prices of the underlying asset and the value of the derivative financial instrument itself, the investor's financial result from the PFI Transaction is affected, among other things, by the costs associated with the conclusion and execution of the PFI Transaction, including the Broker's remuneration. Investors, being clients of the Broker, are required to familiarize themselves with information about the fees and commissions charged by the Broker as part of executing clients' orders to conclude PFI Transactions (and, in particular, option transactions). Information on fees and commissions charged by the Broker when concluding and executing option transactions on behalf of clients is provided in Appendix 3 to the Regulations on the Provision of Brokerage (Agency) Services on the Securities Market. Please note that Broker's commissions are not taken into account when calculating the value of an option contract and are charged separately after the conclusion of the relevant transaction (purchase of an option).

Investors, being clients of the Broker, can enter into PFI Transactions, including for the purpose of hedging their risks on other investments, however, the Broker does not adjust the amount of PFI Transactions depending on changes in the size of the risk hedged by the investor. The broker does not verify or evaluate the presence/absence of hedged risks and/or underlying assets associated with these risks for the investor. When accepting an order from an investor to make a PFI Transaction, the broker does not request or verify the economic goals and the investor's need to conclude a PFI Transaction.

Please note that the "writing out" of options, i.e. the sale of option contracts, under which the seller receives a fee or premium, in exchange for assuming the obligation to buy or sell a financial instrument, which is the underlying asset of the option, at a predetermined price on a certain date in the future, can only be recommended to experienced investors who have significant financial capabilities and practical knowledge in the application of investment strategies. Issuing options, as well as entering into futures contracts with relatively small adverse price fluctuations in the market, may expose the investor to the risk of significant losses, while in some cases the amount of such losses may be unlimited. Taking into account the above, please note that such transactions are available only to clients who have previously been assigned the status of a Professional Client by the broker.

Retail clients have fewer opportunities to trade derivatives than Professional Clients due to regulatory and regulatory requirements, as well as differences in training and experience between the two categories of clients. The list of derivative financial instruments available for trading for Retail and Professional Clients may change regularly in accordance with applicable regulations and/or at the discretion of the Broker himself. Retail clients can only purchase option contracts, as well as submit orders to close positions in previously acquired option contracts (when executing such orders, the client sells his previously acquired right to another person, but does not "issue" the option himself and does not become a seller under the option contract). When buying an option contract, the investor's losses do not exceed the amount of the option premium paid by the investor and the Broker's remuneration.

The broker provides Retail Clients with access only to a limited list of derivative financial instruments at organized auctions. The investor hereby confirms that he understands, understands and accepts that the procedure for concluding, as well as certain conditions for executing transactions with derivative financial instruments at organized auctions are determined by the documentation of the relevant organizer of trading and clearing organization (if applicable) and not all relevant conditions may be known at the date of the investor's submission and acceptance by the broker of the order for the conclusion of the relevant transactions with derivative financial instruments.

The use of derivative financial instruments is recommended only to investors who have special knowledge and understanding of their economic and legal nature. To increase the level of knowledge and prepare clients for derivatives trading, the Broker recommends that you complete special training provided by the Broker on the website (https://fbroker.kz). Completing the training does not guarantee successful trading and does not exclude the risk of capital loss. The broker has the right to require clients to undergo regular testing in the field of derivatives at its discretion or at the request of the regulator. In addition, the Broker has the right to restrict or prohibit access to derivatives trading or the opening of new positions in case of failure to pass the specified testing.

PC Freedom Finance Global PLC is not responsible for possible losses of the investor in the event that the investor decides to make a PFI Transaction. It is recommended that the investor independently conduct investment analysis and receive professional advice before each PFI Transaction. By submitting an order for a PFI Transaction, the Client acknowledges and agrees that he makes all decisions independently and is fully aware of all possible risks disclosed in this Disclaimer, as well as in Appendix 4 to the Regulations, information materials posted by exchanges and intermediaries (NYSE, Options Clearing Corporation (OCC), etc.) The Client also agrees and acknowledges that the Broker is not responsible for the possible risks and losses of the Client associated with the conclusion of PFI Transactions.

Advanced Trades for Investors

Derivatives are contracts for executing a transaction with a specific asset (“underlying asset”) at a future date under pre-determined conditions. The value of a derivative and the obligations of the parties involved depend on the changes in the value of the underlying asset (which can include securities, currencies, commodity indices, and others). The most common derivatives are futures and options. These are officially traded on exchanges.

 

What are options?

This is an agreement concluded on the stock exchange, under which an investor acquires the right to buy or sell an underlying asset in the future for a certain amount of money. That is, it is not necessary to buy or sell, but it is possible.

 

Let's say you want to buy 100 shares of Apple in three months. You negotiate with the seller: "I want to have the right to buy Apple shares in three months at $220 apiece." The seller agrees, but asks for a premium (the cost of the option) for this right – for example, $300.

Possible scenarios:

1. Three months later, AAPL shares rose to $270. But thanks to the option, you can buy them for $220. In this case, your profit is: ($270 - $220)*100 shares - $300 = $4,700.

2. If AAPL shares have fallen in price, you have the right not to buy them. In this case, your loss will be the $300 premium that you paid for the option.