By trading metals using a spot deferral facility you may lose your initial capital. By using the spot deferral facility, you incur a cost, and this may also adversely affect your capital position and adversely affect your breakeven price. Should you as the client decide that you would like to spot defer your holdings with EBLN DMCC using spot deferred settlement products and services, the amount of your deposit will only be a percentage of the physical value of the physical commodity you have agreed to purchase. A relatively minor market movement will have a proportionately larger impact on the funds you have deposited. In the light of this, deferral can work against you as well as financially beneficial for you. You may sustain a significant loss of your initial deposit and any additional funds you may have also deposited to support your physical commodity position. If the market moves against your holding and required equity levels into relation to your holding are increased, you may as the client be called upon to pay substantial additional funds at short notice to maintain the current physical commodity holding you presently have.
Trading on over-the-counter markets requires experience, knowledge and skill. Buying and selling physical commodities is speculative and contains a varying degree of risk. EBLN DMCC is not regulated by the Financial Conduct Authority (FCA) but the Dubai Multi Commodities Centre in the UAE and means that you will not have access to any statutory compensation schemes. The buying and selling of physical OTC commodities, such as Gold, Silver, Platinum, Palladium or Rhodium is not a regulated product. This means that you are not eligible to any recourse under the Financial Services Compensation Scheme (FSCS) or any compensation scheme. In the event EBLN DMCC becomes irreversibly insolvent, unallocated holdings that you the customer may be trading may be deemed an asset of EBLN DMCC and so may be at risk if the customer has not already transferred his holdings, and responsibility successfully to another trading firm through the wind down process.
Past performance of physical commodities provides no indication of future performance. You should consider before you make any decision to purchase and trade within the over the counter spot market’s your individual position financially.
The currency exchange rate fluctuations may also have an adverse effect on the value of transactions you may enter into with EBLN DMCC that may be traded in foreign currencies.
The reason spot commodity trading, and therefore spot gold and silver as well other precious metals are not regulated are because they do not fall under the definition of a “financial instrument” as defined by the financial conduct authority glossary. Lending precious metals for the purposes of short selling are also not a regulated activity. Short selling of precious metals is not subject to the short selling regulation [Council of 14.01.12 on short selling and certain aspects of credit default swaps 236/2012]. If you have a short contract and the price of the precious metals goes up this will affect your capital and you may lose it entirely.
Using the spot deferral facility, which enables you to defer an amount of the transaction cost until you sell the position, can adversely affect your break even prices and you are at risk of losing some or all of your initial capital in adverse market conditions.
“Financial instruments”, which are regulated are defined as the below in the FCA glossary, which include.
(e) options, futures, swaps, forwards and any other derivative contracts relating to commodities that must be settled in cash or may be settled in cash at the option of one of the parties other than by reason of a default or other termination event;
(f) options, futures, swaps, and any other derivative contract relating to commodities that can be physically settled provided that they are traded on a regulated market, an MTF, or an OTF, except for wholesale energy products (having regard to article 6 of the MiFID Org Regulation) traded on an OTP that must be physically settled where the conditions of article 5 of the MiFID Org Regulation are met;
(g) options, futures, swaps, forwards and any other derivative contracts relating to commodities, that can be physically settled not otherwise mentioned in (f) and:
(i) not being for commercial purposes having regard to article 7(4) of the MiFID Org Regulation;
(ii) which have the characteristics of other derivatives financial instruments having regard to article 7(1) of the MiFID Org Regulation; and
(iii) not being spot contracts having regard to articles 7(1) and (2) of the MiFID Org Regulation.
Spot commodities, and in turn the trading of spot precious metals are not “financial instruments” and therefore not classed as a regulated activity. Additionally there are further risks to take into consideration when executing trades in the spot commodity markets:
- PHYSICAL COMMODITY MARKET FLUCTUATIONS RISK The physical commodity market is unpredictable and volatile. Past price fluctuations whether up or down are not indicative of what the future price of physical commodities may be.
- PHYSICAL COMMODITY SPREADS RISK In periods of increased volatility quoted spreads of physical commodities can increase and become wider than normally will be the case. It may also be the case whilst fixings are being conducted within the markets that EBLN may find it difficult to provide price quotes to the Client. EBLN will though on occasions like this, though not required to do so will endeavour to provide a price quote on the desired commodity.
- OFF EXCHANGE TRANSACTIONS RISK physical commodity trading is not carried out on any recognised future exchanges. EBLN will be acting as your counter party in all of your physical commodity transactions.
- FOREIGN EXCHANGE MARKET FLUCTUATIONS RISK transactions that are executed in a currency that is not the base currency of the EBLN account will be affected by the fluctuations in the currency exchange rate that the transaction is being placed in.
- CLIENT CASH DEPOSITS RISK client cash deposits are held in a separate client account administered by a reputable UK based bank by industry counterparty’s, not EBLN. However, all banks are subject to possible failure. In the event of a bank failure compensation may be available from the appropriate authorities.
- SPOT DEFERRAL RISK Should you as the client decide that you would like to spot defer your holdings with EBLN using spot deferred settlement products and services, the amount of your deposit will only be a percentage of the physical value of the physical commodity you have agreed to purchase. A relatively minor market movement will have a proportionately larger impact on the funds you have deposited. In the light of this, deferral can work against you as well as financially beneficial for you. You may sustain a significant loss of your initial deposit and any additional funds you may have also deposited to support your physical commodity position.
- ADDITIONAL FUNDS REQUEST If the market moves against your holding and required equity levels into relation to your holding are increased, you may as the client be called upon to pay substantial additional funds at short notice to maintain the current physical commodity holding your presently have.
- POLITICAL RISK AND TAX RISK Governments or Government agencies could impose taxes that may affect the Client buying and selling physical commodities. You should seek independent tax advice as laws are subject to change. EBLN are not tax advisers and will not provide tax advice. Governments or Government agencies may also implement laws and political changes that may restrict the ownership of physical commodities.
- INSURANCE EXCLUSIONS as is the established common practice with the insuring and physical protection of physical commodities there may be some exclusion. Underwriters for example may exclude nuclear war.
- FORCE MAJEURE Refer to 4.2.9
- GATED FUNDS AND FREEZING OF REDEMPTIONS If EBLN was affected by outside forces or any cause it identifies and prevented client fund withdrawals and redemptions, EBLN are neither liable nor responsible for the delay, nor any costs incurred while the funds are delayed and redemptions or withdrawals cannot happen.