DIFX Pty Ltd (“We”, “Us”, “Our”, “DIFX”, the “Company”) is authorised and registered with the Australian Transaction Reports and Analysis Centre (AUSTRAC).
Important – Please Read Carefully
Please consider the information provided in this Risk Disclosure Statement (“Statement”) as a general overview of investment risks for your awareness only. This Statement is not intended to provide investment or legal advice, and we make no representation that the investments or services described herein are suitable for you, nor do we guarantee the reliability, accuracy, or completeness of the information contained within.
This Statement does not and cannot disclose or explain all the risks involved in engaging with us, nor how these risks may relate to your personal circumstances, financial
situation, or objectives. It is intended solely to provide a fair and non-misleading explanation of the general nature of the risks involved.
We do not guarantee or make any representations regarding financial outcomes based on the use of the information contained in this Statement. We also advise against relying
solely on this information when making an informed investment decision. Before deciding to trade and/or invest, you should carefully evaluate the risks involved and seek
independent advice if necessary.
Investment in securities involves certain considerations and a high degree of risk. You should not engage in designated investments unless you fully understand their nature
and the extent of your exposure to risk. Not all investments are suitable or appropriate for all investors. You should ensure that any investment you choose is appropriate and
suitable for you, taking into account your circumstances, investment objectives and expectations, financial position, and categorization as a Professional Client.
Before committing to any specific type of designated investment, you should understand the nature and associated risks of that investment. If a designated investment consists of two or more different designated investments or services, the combined risks may be greater than those associated with each individual component. While we cannot disclose all possible risks or significant aspects of each individual designated investment, we urge you to consider the following risks.
For the purposes of this Statement, the terms “you” and “your” refer to the Client.
General Key Risks
Systemic risk
Systemic risk refers to the potential for multiple financial institutions to experience impairment in their ability to perform their functions effectively. Given the high degree of
interaction and interdependence among financial institutions, assessing systemic risk is complex. However, if such a risk materialises, it can have a widespread impact, affecting all participants in the financial market.
Market risk
Market risk arises from adverse changes in the value of financial instruments. The value of these instruments is influenced by factors such as equity prices, debt prices, commodities, exchange rates, interest rates, and other reference rates, as well as their volatility and correlations. These factors are shaped by various elements, including
political instability, government trade policies, fiscal and monetary policies, the state of markets and industries, and force majeure events such as natural disasters or war.
Depending on the chosen trading strategy, market risk can result from an increase or decrease in the value of financial instruments. You should be aware that the value of your financial instruments can both increase and decrease, and past performance does not guarantee future results. Market risk includes the following components:
• Currency risk - If assets are invested in instruments denominated in different currencies, you may encounter currency exchange risks. These risks are particularly significant in emerging markets and materialize as the potential for loss due to fluctuations in currency values.
• Interest rate risk - This refers to the risk of a decline in the value of debt securities when interest rates rise, or the risk that income from bonds or money market instruments may decrease as market interest rates fall.
• Risk of equity issuer bankruptcy - This risk materialises when the price of equity in a company sharply declines due to the company's insolvency or the significant likelihood of insolvency.
Credit risk
Credit risk refers to the possibility that contractual and other obligations taken on by other parties in connection with your transactions may not be fulfilled. Credit risk includes the following components:
• Risk of default on bonds and other debt securities - This is the risk that the issuer of a security may become insolvent, leading to an inability to repay its debt in a timely manner or in full.
• Counteragent risk - This is the risk that a third party, such as a counterparty or asset manager, may fail to fulfill its contractual obligations to you. While your asset manager must take steps to minimize counterparty risk, it cannot eliminate it entirely. This risk is particularly high when transactions are conducted on unregulated markets where no clearing house exists.
You should be aware that you bear the risks associated with the non-fulfillment of third- party obligations, especially when your asset manager is acting on your behalf. Additionally, you should understand that client funds are stored in a bank account, and you bear the risk of the bank's potential bankruptcy, which could impact the safety of your funds.
Liquidity Risk
Liquidity risk refers to the possibility of being unable to sell (or buy) a financial instrument at the necessary price due to a significant decrease in demand (or supply) for that instrument. This risk is particularly pronounced when there is a need to sell a large amount of financial instruments, as their price may drop sharply. You should understand that illiquid financial instruments are likely to experience sharp price movements when substantial transactions occur.
Criminal Risks
Some countries are affected by corruption and organised crime, and businesses operating in such regions can be potential victims of theft or distortion. The negative consequences of crime and corruption may adversely affect the value of investments or may lead the manager to alter certain activities or liquidate investments.
Regulatory and Legal Risks
Transactions in markets across different jurisdictions may expose you to additional risks. Markets are subject to continuous and substantial regulatory changes, and it is difficult to predict what statutory, administrative, or exchange changes may arise or what impact they may have on your investment results.
You should be aware that, depending on the jurisdiction, the transfer of ownership of securities may be subject to limitations, and foreign investments in many countries may
face currency, tax, export restrictions, and numerous other regulations. Foreign investment laws may not provide assurance regarding the rights of foreign investors to remit profits, dividends, or repatriate capital upon liquidation.
In emerging markets, there is generally less government oversight and regulation of business practices, stock exchanges, OTC markets, brokers, dealers, and issuers compared to more established markets. In some regions, laws and regulations governing investments in securities and other assets may be non-existent or subject to inconsistent
interpretations.
Tax Risk
Due to the complexity of tax laws and the varying considerations applicable to each market participant, you should carefully consider the potential tax consequences of any investment in a managed account. It is possible that the current interpretation of tax laws, or practices in certain jurisdictions, may change, or that the law may be amended retroactively.
Suspensions of Trading
Under certain market conditions, it may be difficult or impossible to liquidate a position. This may occur if the price of an asset rises or falls significantly within a single trading
session, resulting in a suspension or restriction of trading under the rules of the relevant exchange. Placing a stop loss order will not necessarily limit your losses to the intended
amounts, as market conditions may prevent such an order from being executed at the stipulated price.
Clearing House Protection
On many exchanges, the execution of transactions is guaranteed by the exchange or clearing house. However, this guarantee may not protect you in most situations and may
not apply if a counterparty defaults on its obligations to you. You should familiarize yourself with any protection provided to you under the clearing guarantee for on- exchange instruments in which you are involved. Note that there is no clearing house protection for traditional options or off-exchange instruments that are not traded under the rules of a recognized or designated investment exchange.
Use of the Internet and Online Account
The internet is not a secure network, and any communications, materials, documents, or information transmitted over the internet or through your online account may be intercepted or accessed by unauthorized parties. Such communications may not arrive at their intended destination or may not arrive in the form initially transmitted. There is no guarantee that any information transmitted via the internet or accessed through your online account will remain confidential or intact. Any communications or materials sent to or from you via the online account are at your sole risk. It is your responsibility to ensure that no unauthorized person has access to your online account, other than you or your duly authorised representatives.
Operational and System Risk
Operational risks associated with our Electronic Trading Platform(s) are inherent in all the products we offer. For example, disruptions in operational processes such as communication failures, computer system issues, network malfunctions, or external events may lead to delays in transaction execution and settlement.
We are not liable for any losses arising from delays, errors, or failures in operational processes that are outside our control, including faults in the Electronic Trading Platform(s) or the provision of data by third parties.
Disruptions to our operational processes, including issues with communications, computers, computer networks, software, or external events, could result in delays in the execution and settlement of your funds. This may prevent you from trading a particular service or product we offer, potentially causing you financial loss or missed opportunities.
If you experience a disruption with our trading platform, you can contact our Support team directly to open or close your positions.
Conflict of Interest
DIFX is subject to both actual and potential conflicts of interest that may work against your interests. For more information about these conflicts and the procedures and controls we follow to manage them, please refer to the DIFX Conflicts of Interest Policy available on our website.
Instrument-Specific Risks
Equities
When considering investments such as shares or stocks, having sufficient financial resources is crucial. You should not invest any amount that you cannot afford to lose.
Equity securities are subject to volatility risk, influenced by various factors including the company’s financial health, the general economic environment, and interest rate levels. Unlike debt instruments, equity instruments do not pay interest but typically offer a share of the company’s profits, often in the form of dividends. However, it is possible that no
dividend is paid at all.
Past performance is not necessarily indicative of future results. You may receive less than the amount you originally invested. Smaller companies, in particular, pose a higher risk
of loss, as their share prices can fluctuate significantly. The buying and selling prices for such shares may differ widely, and they can experience rapid price increases or decreases. If you decide to sell these shares immediately, you may get back less than you paid for them.
Equity securities also carry issuer risk. In the event that the issuer goes bankrupt, holders of equity securities are only considered for compensation after all other claims against the issuer have been settled.
Debt Securities
Debt securities are subject to market, liquidity, and credit risks. The price of a debt security may fall during its term, particularly due to lack of demand, rising interest rates, or a decline in the issuer’s creditworthiness. When you invest in debt securities, you are effectively lending money to the issuer. There is always a risk that the issuer may not be able to meet its debt service obligations due to weakened creditworthiness, corporate restructuring, regulatory changes, or unforeseen events. If this happens, you may not receive your investment back in full or at all.
Money Market Products
Money market products are short-term debt instruments issued for financing purposes, either as certificated or uncertificated securities. The value of money market products may fall during their term. Additionally, when holding money market products, you are exposed to the same credit and market risks as outlined in this statement.
Foreign Exchanges (FOREX)
Foreign exchange transactions involve the purchase of another currency and expose you to a high degree of risk. Before engaging in foreign exchange trading, you should carefully consider your investment objectives, expectations, level of experience, and risk tolerance. Any movement in the market will have a proportional effect on your deposited funds when trading on a margin basis. This can work both for you and against you, and in some cases, may result in a total loss exceeding your initial margin funds. You may also be required to deposit additional margin funds at short notice.
It is important to consider risk-reducing strategies such as ‘stop-loss’ or ‘stop-limit’ orders, although these may not necessarily limit losses to the intended amounts. Additionally, when a foreign currency-denominated contract requires currency conversion, any resulting profit or loss will be affected by fluctuations in currency rates.
Transactions involving currencies are highly sensitive to factors beyond our control, such as changes in a country’s political conditions, economic climate, or acts of nature. These factors can significantly influence the price or availability of a given currency.
Warrants
A warrant gives you the right to subscribe for shares, debentures, loan stock, or government securities, exercisable against the original issuer of the underlying securities. The right is time-limited. Warrants often involve a high degree of gearing, meaning that a relatively small movement in the price of the underlying security can lead to a disproportionately large change in the price of the warrant.
You should not purchase a warrant unless you are prepared to accept a total loss of the invested funds, as well as any commission or other transaction charges. Transactions in off-exchange warrants may involve greater risks than dealing with exchange-traded warrants. This is due to the absence of an exchange market to liquidate your position, assess the value of the warrant, or evaluate exposure to risk. Bid and offer prices may not be quoted, and when they are, they are established by dealers, making it difficult to determine a fair price.
Futures and Forwards
Futures and forwards carry special risks, and only investors familiar with these financial instruments, who have sufficient funds available and can bear potential losses, should invest in them.
Forwards: With forward sales, the underlying asset must be delivered at the price originally agreed, even if its market value has increased beyond the agreed price. The potential loss is equal to the difference between the two prices. Since there is no limit to how much the market value of the underlying asset can rise, the potential loss is also unlimited.
The forward sale of an asset that the seller does not own at the time the contract is signed is known as a short sale. This entails a risk that the seller may have to purchase the underlying asset at a higher price than the agreed-upon price to meet the delivery obligation on expiry.
In a forward purchase, the buyer is required to take delivery of the underlying asset at the price originally agreed, even if its market value has since fallen below that price. The loss
risk is the difference between the agreed price and the market value, and the maximum loss corresponds to the originally agreed price.
• Futures: Unlike forwards, futures are considered to be contingent liabilities. This means that if the market moves against your position or if margin levels are increased, you may be required to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a margin call within the prescribed time, your position may be liquidated at a loss, and you will be liable for any resulting deficit.
Futures transactions are typically leveraged, meaning that the amount of initial margin is small relative to the value of the contract. As a result, a relatively small market movement can have a proportionally larger impact on your deposited funds or any additional funds you may need to deposit. Be aware that you may sustain a total loss of the initial margin and any additional funds deposited to maintain your position.
To limit price fluctuations, exchanges may set price limits for certain contracts. You should familiarize yourself with these limits before investing in futures, as it may become difficult or even impossible to close out a contract once a price limit is reached.
Options
Options are divided into two categories: call options and put options. A call option gives the purchaser the right to buy a specific underlying asset at an agreed exercise price within a specified period or on a specific date. A put option gives the seller the right to sell a specific underlying asset at an agreed exercise price within the same terms.
The underlying asset for options can include shares of a specific company, bonds, notes, bills, certificates of deposit, commodities, foreign currency, cash value of shares in a stock index, or any other asset specified in the option terms.
Risks Associated with Purchasing Options
• Purchaser's Risks: The purchaser of an option risks losing the entire investment in a relatively short period. If the price of the underlying asset does not rise above (in the case of a call option) or fall below (in the case of a put option) the exercise price plus the premium and transaction costs, the option may become of little or no value. If the option is allowed to expire, it will be worthless. The value of an option can decrease even if the market value of the underlying asset remains unchanged. This can happen, for example, when the time value of the option decreases, when supply and demand factors are unfavourable, or when changes in volatility affect the option more significantly than changes in the market value of the underlying asset.
Risks Associated with Selling Options
• Call Option: When selling a call option without owning the underlying asset, the seller risks a potential loss if the price of the underlying asset increases. If the call option is exercised, the seller may need to buy the underlying asset at a market price higher than the exercise price to fulfill the delivery obligation, resulting in a loss.
• Put Option: For a put option, the seller who does not have a corresponding short position in the underlying asset will incur a loss if the price of the underlying asset decreases below the exercise price. The seller will be required to purchase the underlying asset at a price above the market price, leading to an immediate loss when attempting to sell it.
Transactions involving options may also be conducted in foreign currency. As such, both purchasers and sellers of these options will be exposed to currency risk in addition to risks from fluctuations in the price of the underlying asset.
Additional Risks
• Market Liquidity Risk: There is no assurance that a liquid market will exist for a specific option to enable an offsetting transaction. For example, trading may be limited due to insufficient market interest, trading halts, suspensions, or other restrictions on the option or the underlying asset. In such cases, the purchaser of the option would only have the alternative of exercising the option to realize any profit. On the other hand, the seller would be unable to terminate their obligation until the option expires or is exercised.
Risks Associated with Purchasing and Selling Options
Shortage of Underlying Asset: In certain circumstances, there may be a shortage of the underlying asset due for delivery upon exercise of an actual delivery option. This shortage could increase the cost of, or even make it impossible to acquire, the underlying asset, leading to the clearing house imposing special exercise or settlement procedures.
Buying Options: Buying options generally involves less risk than selling options. The maximum loss is limited to the premium paid for the option, plus any commission or other transaction charges. However, if you buy a call option on a futures contract and later exercise the option, you will acquire the underlying future, which exposes you to the risks associated with that future contract.
Selling Options: Selling options carries considerably more risk than buying. You may be required to deposit margin to maintain your position, and losses may exceed the premium you received for selling the option. By selling an option, you assume a legal obligation to either purchase or sell the underlying asset if the option is exercised against you, no matter how far the market price moves from the exercise price.
If you own the underlying asset that you’ve agreed to sell (known as a "covered call option"), the risk is reduced.
However, if you do not own the underlying asset (an "uncovered call option"), potential losses can be unlimited. Selling uncovered options is only suitable for experienced investors, and they should fully understand the conditions and potential risk exposure.
Private Equity Risks
Private equity involves providing risk capital financing to companies that are either not listed on a stock exchange or wish to delist. Investments are typically made in the early stages of a company's development, which can be highly uncertain and carries a high level of risk.
Lack of Regulation and Transparency: Private equity investments are not usually subject to regulation, particularly in terms of investor protection. Due to this lack of oversight and transparency, these investments carry higher risks for investors, especially in private equity vehicles based in countries with relaxed regulations.
Potential for Substantial Losses: Private equity investments can lead to significant risks, including the potential for total losses. These investments are typically long-term and often have very limited liquidity.
Real Estate Risks
The value of real estate can be influenced by numerous factors, including:
Location and Facilities: The geographical location and the quality of facilities available at the property.
Usage Flexibility: The variety of ways the property can be used.
Local Political and Legal Factors: Political programs affecting supply or demand, local tax policies, and legal considerations.
Other Individual Factors: Specific market conditions and other factors that may affect the value and marketability of the property.
Indirect Real Estate Investments Risks
When investing indirectly in real estate, such as through real estate funds, shares of real estate companies, or certificates on real estate funds, it is important to consider the specific risks associated with the financial instrument you are using.
Regulated vs. Unregulated Funds: There are traditional, strictly regulated funds that invest in real estate, but there are also real estate investments that resemble hedge funds or private equity, which tend to carry higher risks.
Physical Assets and Lack of Regulated Trading: All real estate investments are ultimately backed by physical assets—buildings and land. Since each property is unique, there is no centralized or regulated trading market for these assets, which can increase the risks of these investments.
Hedge Funds Risks
Hedge funds are often subject to limited or no regulation and supervision. They have the freedom to choose their asset classes, markets (including high-risk countries), and trading methods. The key risks associated with hedge funds include:
Aggressive Investment Strategies: Hedge funds often employ aggressive strategies that may involve high levels of risk, including decoupling their performance from that of the broader markets.
Flexibility in Investment Decisions: Hedge fund managers typically have significant flexibility in their investment decisions and are often not bound by regulations on liquidity, redemption, conflicts of interest, fair pricing, disclosure, or the use of leverage that apply to conventional funds.
Higher Risk Exposure: Due to the lack of regulatory oversight and the flexibility hedge funds have, investing in them carries a higher level of risk compared to investing in conventional financial instruments.
Commodities Risks
Investing in commodities typically occurs through structured products, commodity funds, commodity futures, or over the counter (OTC) swaps and options. Some key factors to consider include:
Physical Delivery: In commodity futures, investors may be required to accept physical delivery of the commodity at expiry, though cash settlement is typically preferred by most investors. It is important to sell commodity futures before the expiry date if you prefer to avoid physical delivery.
Volatility: Commodity prices are influenced by various factors, including supply and demand dynamics, climate and natural disasters, state programs and regulations, political events, embargoes and tariffs, as well as fluctuations in interest and exchange rates. These factors can cause significant and sudden price changes.
Price Fluctuations: Commodities tend to be more volatile than conventional investments, and their prices can experience sharp declines. The volatility of commodity prices also affects the value of commodity futures and forwards. For instance, while oil futures are typically easy to trade, they can become illiquid in times of low market activity, which can lead to significant price fluctuations.
Structured Products Risks
Structured products are securities that are classified as derivatives, issued in relation to underlying securities, financial instruments, contracts, or obligations (collectively referred to as "underlying assets"). These underlying assets could themselves be derivatives of other underlying assets. As a result, the performance of structured securities can depend on the performance of the underlying assets, or the underlying assets of derivatives linked to the structured securities.
Investing in structured products carries several risks, particularly those associated with the underlying assets of the securities. Below are some key risks involved, though this is not an exhaustive list:
Credit Events Related to Underlying Assets: A credit event refers to occurrences such as bankruptcy, failure to pay, obligation default, obligation acceleration, repudiation/moratorium, restructuring, or any other events defined as a "Credit Event" under the 2014 ISDA Credit Derivatives Definitions (as amended or re- enacted from time to time by the International Swaps and Derivatives Association, Inc.).
Changes in Payment Dates Due to Potential Repudiation: The dates on which underlying obligations are due and payable may change as a result of potential repudiation, which could also involve an applicable grace period as defined in the ISDA Definitions.
Changes in Payment Amounts Due to Credit Events: The amount of payment of underlying obligations may change following a credit event, or the dates on which the obligations are due and payable may also shift.
Unfavourable Movements in the Value of Underlying Assets: The value of structured securities can experience significant changes if there are unfavourable movements in the value of the underlying assets, or the underlying assets of the derivatives that back these securities. This could result in disproportionately large fluctuations in the value of the structured security.
Credit Spreads: The value of credit derivatives that serve as the underlying assets for structured securities can be affected by credit spreads. Credit spreads reflect the market’s expectations about the likelihood of default and the recovery value in case of default. Even without defaults or changes in credit spreads, the value of structured securities could be adversely affected by other factors outlined in this section.
Market Disruption Events, Adjustments, and Early Termination or Freeze of Investment Strategies
In accordance with the terms and conditions of certain financial instruments, the relevant calculation agent may determine that a Market Disruption Event has occurred or is ongoing at a specific time. Such an event may cause delays in the valuation of the underlying assets, which can subsequently affect the value of the financial instruments and/or result in delays in settlement.
Furthermore, if stipulated in the terms and conditions of the financial instruments, the calculation agent may make necessary adjustments to the terms and conditions to accommodate any changes or events affecting the underlying asset. These adjustments may include, but are not limited to, determining a successor to the underlying asset or its issuer/sponsor.
In certain cases, the DIFX or the relevant third party may take specific actions, including:
Termination of the financial instruments
Placing the instruments on hold or extending the holding period
Freezing or halting the investment strategy associated with the instruments
These actions may be taken in response to a Market Disruption Event or other related factors. Additionally, any such event may affect the holding period, selling period, or other transactional aspects of the financial instruments, including those related to specific securities (e.g., Western securities).
