Risk Warning Notice
This notice is provided to you in compliance with
requirements laid down by the FSA because you are
proposing to undertake dealings in contracts for differences in the form of bets
with a firm which is carrying on investment business as a bookmaker. It cannot
disclose all of the risks and other significant aspects involved in dealing in
contracts for differences in the form of bets. Engaging in this type of
transaction can carry a high risk. As these transactions differ markedly from
normal bets you should not engage in this form of betting unless you understand
the nature of the transaction you are entering into and the true extent of your
exposure to the risk of loss. The amount that you may win or lose will vary
according to the extent of the fluctuations in the price of the sports based
index ('the underlying market') on which the bet is based instead of a
predeterminable sum when a normal bet is placed. Always remember that previous
betting performance is no indicator of future betting performance. For many
members of the public, these transactions are not suitable; you should,
therefore, consider carefully whether they are suitable for you in the light of
your circumstances and financial resources. In considering whether to engage in
this form of betting, you should be aware of the following:
- The high degree of
'gearing' or 'leverage' is a particular feature of this type of transaction.
This stems from the margining system applicable to such bets which generally
involves a comparatively modest deposit or margin in terms of the overall
contract value, so that a relatively small movement in the underlying market can
have a disproportionately dramatic effect on your bet. If the underlying market
movement is in your favour, you may achieve a good profit, but an equally small
adverse market movement can not only quickly result in the loss of your entire
deposit, but may also expose you to a large additional loss unless you enter
into a limited liability contract with the firm. If you deal on a credit basis
and, therefore, not subject to initial margin requirements, the extent of your
agreed credit facility does not limit your loss or financial liability and you
can be subject to margin calls for an amount in excess of your facility. As a
consequence the amount of capital you are prepared to place at risk should be
sufficient to cover your credit limit and the possibility of subsequent margin
calls which will only be made once your credit limit has been exceeded.
- You may be called upon to
deposit a substantial additional margin, at short notice, to maintain your bet.
If you do not provide such additional funds within the time required, your bet
may be closed at a loss and you will be liable for the resulting deficit.
- Such transactions will not be
undertaken on a recognised or designated investment exchange and, accordingly,
they may expose you to greater risks than exchange transactions. The betting
structure and betting rules will be established solely by the bookmaker. For
example, if you wish to close the bet earlier than the time at which it would
otherwise automatically expire, you will have to close it at your bookmaker's
quotation which may reflect the premium or discount of the 'underlying market'
which when closed can be influenced by the weight of the other client buying or
selling with your bookmaker. You will have to close any bet with the same
bookmaker with whom it was originally entered into.
- Where entering into such
transactions, your bookmaker must do so under a two-way customer agreement
pursuant to the FSA Conduct of Business rules unless
exempted from doing so. You should satisfy yourself that dealing is conducted
throughout in strict conformity with that customer agreement and report to the
FSA if you have reason to believe it is not.
- Prior to placing any bets, you
should receive from your bookmaker written confirmation of all transaction or
other charges for which you will be liable.
- As a result of Section 412 of
the Financial Services and Markets Act 2000, the bets in this case are
enforceable and the bookmaking firm may be sued by you (which is advantageous to
you if you win) and may sue you (which is disadvantageous to you if you
lose).
- Your bookmaker is prohibited
under FSA requirements from providing you with
investment advice relating to investments or possible transactions or possible
investments or from making investment recommendations of any kind. This
prohibition is subject to an exception where advice given amounts to the giving
of factual market information, in relation to a transaction about which you have
enquired, as to transaction procedures, potential risks involved and how those
risks may be minimised.
- Your bookmaker is required to
hold your money in segregated trust accounts in accordance with the regulations
of FSA, but this may not afford complete protection.
- If you deposit collateral as
security with your bookmaker, you should ascertain from your bookmaker how your
collateral will be dealt with.
- If you have reason to believe
that the bookmaker with which you deal is not acting in accordance with
representations that it has made to you, the terms of your customer agreement or
the rules of the FSA, you should report it to: The
Financial Services Authority Limited, 25 North Colonade, Canary Wharf, London
E14 5HS. Telephone: 020 7066 1000.
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