Trading Risk At TFX

1.Common Risks Applicable to Both Types of Contracts

(1)Price Fluctuation Risk

Fluctuations in interest rates, currency rates, prices of equity indices etc. or prices of ETFs may cause a loss. Since the transaction amount is much larger than the deposited exchange margin, these fluctuations may cause a loss exceeding the deposited exchange margin, depending on market conditions. Click Kabu 365 prices also do not reflect the actual prices of equity index or ETF. The difference in these two prices can expand due to factors such as supply and demand balance and market conditions. Therefore, investors may incur losses when they are unable to trade contracts at prices they expect based on actual prices of equity index or ETF.

(2)Credit Risk

TFX has introduced the clearing system under which it acts as a counterparty to a TFX Trading Member in each contract and TFX segregates all exchange margins deposited by Customer; therefore, all deposited margins are in principle protected. Provided, however, that non-payments by a TFX Trading Member etc., due to changes in credit status or bankruptcy by a TFX Trading Member etc., may cause delays in completing refund procedures or unexpected loss.

(3)System Failure Risk

If a failure occurs in the system of TFX or a TFX Trading Member, or network system among Customers, TFX Trading Members and TFX, delivery of market information, etc, placement of order or execution thereof may be delayed or become impossible, and as a result, an unexpected loss may be caused.

(4)Risks of changes in tax systems, laws, etc.

Changes in tax systems, laws or their future interpretation may cause unfavorable results.

2.Risks of retail products

(1)Interest Rate Fluctuation Risk

Fluctuations in the interest rate of Japanese currency or foreign currency in relation to Click 365 and Click Kabu 365 may decrease the swap point of Click 365 or the interest of Click Kabu 365 to be received, or increase the same to be paid. With Click 365, if the interest rate levels of two countries comprising a position are reversed, the party holding the position to receive swap points may be required to make payments under such transaction. As to certain currency underlying the relevant transaction, various factors such as correlation between supply and demand of such currency in the foreign exchange market may also increase or decrease swap points or may cause the reversal of receipt or payment of swap points, notwithstanding the fluctuation of interest rates. There could even be a case where an investor has a long position in a currency with a higher interest rate but is required to pay swap points.

(2)Liquidity Risk

Click 365 and Click kabu 365 introduced the Market-Making Method for Exchange FX Margin contracts, in which Market Maker offers ask and bid prices at which Customers may execute a transaction. It may become difficult or impossible for Market Maker to provide the ask and bid prices in a stable and sustainable manner, depending on certain conditions such as acts of God, war, political change, change in legislation, in foreign exchange policies or in laws and rules of the relevant country, system changes at the exchanges on which the issues that comprise the relevant equity indices are listed, restrictions on trading of futures contracts whose underlying assets are relevant equity indices, change in policies or in laws and rules on commodity market, etc. of the relevant country, system changes or restrictions on trading at the exchanges on which ETFs are listed, restrictions on trading of commodity futures contracts related to ETFs, delay or suspension in the distribution of information, or sharp fluctuations in the currency market, etc., and as a result, Customers may not be able to trade at expected prices and suffer an unexpected loss therefrom. Transactions involving a certain currency in Click 365 may not regularly be traded on a day on which the market in a country of such currency is closed for business. Further, trading of transactions involving certain currency pairs may become impossible, where any abnormal circumstances occur, such as where foreign exchanges adopt certain measures or policies or where the relevant country implements restrictions for the cessation of currency exchanges or closure of foreign exchange markets.
In addition, even under normal conditions, transactions in the currencies or equity indices or ETFs with lower liquidity may cause a loss to Customer due to causes such that Customer is not able to execute a transaction at the desired price.

3.Risk of FX Daily Futures contracts

(1)Currency Conversion Risk

Since Cross Currency Pairs transaction (foreign currency pairs trading) is not settled in the relevant foreign currency but in Japanese Yen, it entails an exchange rate risk not only against the relevant foreign currency but also against Japanese Yen at the time of settlement.

4.Risks of Equity Index Daily Futures contracts

(1)Foreign Exchange Risk

When trading overseas Equity Index Daily Futures contracts, Equity Index customer does not carry foreign exchange risks. However, Equity Index Market Maker takes into account foreign exchange risks when providing bids and offers and as a result, the spreads may become large in accordance with the foreign exchange market conditions and Equity Index customer may not be able to trade at prices they expect and subsequently incur an unexpected loss.

(2)Risks related to forecast of dividends

TFX calculates the dividend amount as the theoretical amount that will impact the equity index in the future based on the forecast of dividends as of the last cum-rights date. The amount equivalent to the dividends calculated by TFX is resultantly different from that calculated based on actual dividend payments, or forecast of dividends or actual dividends for the actual shares that comprise the index.

(3)Risks related to consolidation, etc. of investment units of underlying index ETFs

In the event of a consolidation or split of investment units of an underlying index ETF or delisting, etc. thereof (hereinafter called the “Unit Consolidation, etc. as for ETF”), TFX may take measures to suspend, delist or suspend the listing of Equity Index Daily Futures contracts whose underlying index ETFs are subjected to Unit Consolidation, etc. as for ETF. In such cases, if an investor retains positions and does not counter-trade by the prescribed date, such positions may be compulsorily settled, thereby resulting losses being realized, depending on the market price at that time. In addition, depending on the details and circumstances of the Unit Consolidation, etc. as for ETF, the interval from TFX’s decision/ notification of such measures to the compulsory settlement may be short.