Cryptocurrency

The Customer should undertake transactions in futures/ options only when understanding the nature of the contracts (and contractual relationships) into which the Customer is entering and the extent of own exposure to the risks. Trading in futures/ options may not be suitable for everyone. The Customer should carefully consider whether such trading is appropriate for you in the light of your experience, objectives, financial resources and other relevant circumstances. In considering whether to trade, the Customer should be aware of the following, in addition to the risk factors disclosed above:

(14a) Futures, OTCD currency contracts and Spot LFX trading contracts

(i) Effect of ‘Leverage’ or ‘Gearing’

Transactions in futures, OTCD currency contracts and Spot LFX trading contracts carry a high degree of risk. The amount of initial margin is small relative to the value of the futures contract, OTCD currency contract or Spot LFX trading contract transaction so that the transaction is highly ‘leveraged’ or ‘geared’. A relatively small market movement will have a proportionately larger impact on the funds deposited or will have to deposit by the Customer; this may work against or for the Customer. The Customer may sustain a total loss of the initial margin funds and any additional funds deposited with the firm to maintain the position. If the market moves against the position or margin levels are increased, the Customer may be called upon to pay substantial additional funds on short notice in order to maintain the position. If the Customer fail to comply with a request for additional funds within the specified time, the position may be liquidated at a loss and the Customer will be liable for any resulting deficit in the account.

(ii) Risk-Reducing Orders or Strategies

The placing of certain orders (e.g. ‘stop-loss’ orders, where permitted under local law, or ‘stop-limit’ orders) which are intended to limit losses to certain amounts may not be effective because market conditions may make it impossible to execute such orders. At times, it is also difficult or impossible to liquidate a position without incurring substantial losses. Strategies using combinations of positions, such as ‘spread’ and ‘straddle’ positions may be as risky as taking simple ‘long’ or ‘short’ positions.

(14b) Options

(i) Variable Degree of Risk

Transactions in options carry a high degree of risk. Purchasers and sellers of options should familiarise themselves with the type of options (i.e. put or call) which the Customer contemplate trading and the associated risks. The Customer should calculate the extent to which the value of the options would have to increase for the position to become profitable, taking into account the premium paid and all transaction costs.

The purchaser of options may offset its position by trading in the market or exercise the options or allow the options to expire. The exercise of an option results either in a cash settlement or in the purchaser acquiring or delivering the underlying interest. If the option is on a futures contract, OTCD currency contract or Spot LFX trading contract, the purchaser will have to acquire a position in the futures contract, OTCD currency contract or Spot LFX trading contract, as the case may be, with associated liabilities for margin (see the section on Futures, OTCD currency contracts and Spot LFX trading contracts above). If the purchased options expire worthless, the Customer will suffer a total loss of the investment which will consist of the option premium paid plus transaction costs. If the Customer is contemplating purchasing deep-out-of-the-money options, the Customer should be aware that, ordinarily, the chance of such options becoming profitable is remote.

Selling (‘writing’ or ‘granting’) an option generally entails considerably greater risk than purchasing options. Although the premium received by the seller is fixed, the seller may sustain a loss well in excess of the amount of premium received. The seller will be liable to deposit additional margin to maintain the position if the market moves unfavourably. The seller will also be exposed to the risk of the purchaser exercising the option and the seller will be obligated to either settle the option in cash or to acquire or deliver the underlying interest. If the option is on a futures contract, OTCD currency contract or spot LFX trading contract, the seller will acquire a position in the futures contract, OTCD currency contract or spot LFX trading contract, as the case may be, with associated liabilities for margin (see the section on Futures, OTCD currency contracts and Spot LFX trading contracts above). If the option is ‘covered’ by the seller holding a corresponding position in the underlying futures contract, OTCD currency contract, spot LFX trading contract or another option, the risk may be reduced. If the option is not covered, the risk of loss can be unlimited.

Certain exchanges in some jurisdictions permit deferred payment of the option premium, limiting the liability of the purchaser to margin payments not exceeding the amount of the premium. The purchaser is still subject to the risk of losing the premium and transaction costs. When the option is exercised or expires, the purchaser is responsible for any unpaid premium outstanding at that time.

(14c) Additional Risks Common to Futures, Options and Leveraged Foreign Exchange Trading

(i) Terms and Conditions of Contracts

The Customer should ask for the terms and conditions of the specific futures contract, option, OTCD currency contract or spot LFX trading contract which the Customer is trading and the associated obligations (e.g. the circumstances under which the Customer may become obligated to make or take delivery of the underlying interest of a futures contract, OTCD currency contract or spot LFX trading contract transaction and, in respect of options, expiration dates and restrictions on the time for exercise). Under certain circumstances, the specifications of outstanding contracts (including the exercise price of an option) may be modified by the exchange or clearing house to reflect changes in the underlying interest.

(ii) Suspension or Restriction of Trading and Pricing Relationships

Market conditions (e.g. illiquidity) or the operation of the rules of certain markets (e.g. the suspension of trading in any contract or contract month because of price limits or ‘circuit breakers’) may increase the risk of loss by making it difficult or impossible to effect transactions or liquidate/offset positions. If the Customer have sold options, this may increase the risk of loss. Further, normal pricing relationships between the underlying interest and the futures contract, and the underlying interest and the option may not exist. This can occur when, e.g., the futures contract underlying the option is subject to price limits while the option is not. The absence of an underlying reference price may make it difficult to judge ‘fair’ value.

(iii) Deposited Cash and Property

The Customer should familiarise with the protection accorded to any money or other property which the Customer deposit for domestic and foreign transactions, particularly in a firm’s insolvency or bankruptcy. The extent to which the Customer may recover such money or property may be governed by specific legislation or local rules. In some jurisdictions, property which had been specifically identifiable as the Customer’s own will be pro-rated in the same manner as cash for purposes of distribution in the event of a shortfall.

(14d) Commission and Other Charges

Before begin to trade, the Customer should obtain a clear explanation of all commissions, fees and other charges. These charges will affect the net profit (if any) or increase loss which the Customer will be entitled or liable respectively.

(14e) Transactions in Other Jurisdictions

Transactions on markets in other jurisdictions, including markets formally linked to a domestic market, may expose the Customer to additional risk. Such markets may be subject to a rule which may offer different or diminished investor protection. Before trading, the Customer should enquire about any rules relevant to the particular transactions. The Customer’s local regulatory authority will be unable to compel the enforcement of the rules of the regulatory authorities or markets in other jurisdictions where the transactions have been effected. The Customer should ask the firm with for such transactions’ details about the types of redress available in both the Customer’s home jurisdiction and other relevant jurisdictions before starting to trade.

(14f) Currency Risks

The profit or loss in transactions in foreign currency-denominated futures and options contracts (whether they are traded in the Customer’s own or another jurisdiction) will be affected by fluctuations in currency rates where there is a need to convert from the currency denomination of the contract to another currency.

(14g) Trading Facilities

Most open-outcry and electronic trading facilities are supported by computer-based component systems for the order-routing, execution, matching, registration or clearing of trades. As with all facilities and systems, they are vulnerable to temporary disruption or failure. The Customer’s ability to recover certain losses may be subject to limits on liability imposed by the one or more parties, namely the system provider, the market, the clearing house or member firms. Such limits may vary. The Customer should ask the firm for such transactions’ details in this respect.

(14h) Electronic Trading

Trading on an electronic trading system may differ not only from trading in an open outcry market but also from trading on other electronic trading systems. If the Customer undertake transactions on an electronic trading system, the Customer will be exposed to risks associated with the system including the failure of hardware and software. The result of any system failure may be that the Order is either not executed according to the communication of the Customer or not executed at all.

(14i) Off-Exchange Transactions

In some jurisdictions, firms are permitted to effect off-exchange transactions. The firm with which the Customer conduct the transactions may be acting as the Customer’s counterparty to the transaction. It may be difficult or impossible to liquidate an existing position, to assess the value, to determine a fair price or to assess the exposure to risk. For these reasons, these transactions may involve increased risks. Off-exchange transactions may be less regulated or subject to a separate regulatory regime. Before the Customer undertake such transactions, the Customer should familiarise with the applicable rules and attendant risks.

(14j) Payment Token Derivatives (PTDs)

Transactions in PTDs such as Cryptocurrency Futures carry a high degree of risk, and may not be suitable for all investors. Losses may exceed deposits. Do conduct due diligence and consult financial advisor before making any trading decisions. The Customer should carefully consider whether such trading is appropriate in the light of its experience, objectives, financial resources and other relevant circumstances. In considering to trade, the Customer should be aware of the following risks, which include but are not limited to:

(i) Lack of Legislative Protection by Monetary Authority of Singapore (MAS)

Cryptocurrencies are not legal tender and are not issued by any government nor backed by any asset or issuer. Cryptocurrencies are currently not subjected to any regulatory requirements or supervisory oversight by the MAS. Hence, the safeguards afforded under MAS’ regulatory framework will not apply to consumers dealing with unregulated products, such as CFDs on Cryptocurrencies.

(ii) Extreme Volatility

Cryptocurrencies have little or no intrinsic value, making them hard to value and extremely volatile. Being highly speculative, investing in cryptocurrencies entails high risks as prices are prone to sharp, sudden swings as a result of unanticipated events or changes in market sentiments primarily due to the lack of price transparency.

(iii) Liquidity Risks and Price Slippages

Cryptocurrencies is a relatively new asset class and regulations, or a lack thereof, may have an impact on liquidity which in turn may result in unwanted price slippages. This is exacerbated in times of market volatility.

Possible failure of cryptocurrency exchanges may also increase illiquidity.

(iv) Cybersecurity Risks

Being a virtual, decentralized currency with no overarching regulatory body, cryptocurrency intermediaries are vulnerable to security breaches and market manipulations. Technical glitches on cryptocurrency intermediaries may happen as well. Such scenarios may cause disruption to trading and may cause substantial volatility in prices.

(v) Hard Forks

A hard fork changes the software, making it not backward compatible. Blocks running the new software will not be recognized and work with users running the older software, essentially splitting a single cryptocurrency into two. Hard forks may cause substantial volatility in prices.

Exchanges may in its sole discretion, take alternative action with respect to hard forks in consultation with market participants as may be appropriate.

Phillip Nova will endeavor to inform Customers of any hard forks but it is ultimately the Customer’s responsibility to be aware of them.

(vi) Weekend Gap Risk on Cryptocurrencies

Major cryptocurrencies trade 24 hours including weekends. However, Cryptocurrency Futures offered by Phillip Nova are not tradable on weekends and have specific trading hours. This may result in wide price gaps when the market opens after weekends that experienced market volatility.

Trading in PTDs such as futures contracts, cryptocurrency CFDs, debentures and/or collective investment schemes such as funds and ETFs that reference digital payment tokens (or cryptocurrencies) carries a high level of risk. The Customer runs the risk of losing all of their invested capital, or potentially more.
The customer must be fully aware of the following risks associated with both derivatives and products that invest in cryptocurrencies, and carefully assess whether these products are suitable for their investment objectives and risk appetite:

(i) Lack of Legislative Protection by Monetary Authority of Singapore (MAS)

Cryptocurrencies have a wide range of attributes, characteristics and features and most cryptocurrencies fall outside of the ambit of the Payment Services Act. Therefore, the safeguards afforded under the Monetary Authority of Singapore (MAS) regulatory framework may not apply to investors dealing in unregulated products such as these cryptocurrencies.

(ii) Extreme Volatility

Cryptocurrencies have no central authority and are not backed by any government, have little or no intrinsic value, and exhibit high volatility. PTDs and investment products with exposure or investments in cryptocurrencies are prone to sudden sharp swings as a result of unanticipated events or changes in market sentiments primarily due to the lack of price transparency;

(iii) Liquidity Risks

Liquidity may also become limited and price gaps may occur in such circumstances;

(iv) Cybersecurity Risks

Cryptocurrency exchanges, where cryptocurrencies are bought and traded, may be susceptible to cyber security breaches. In the event of a cyberattack and theft of cryptocurrencies, it may result in drastic, adverse price movements.

Generally, use these easy steps to purchase cryptocurrency: 

• Select a broker or cryptocurrency exchange 
• Register for an account and verify it 
• Deposit money to invest 
• Place your order for cryptocurrency 
• Pick a storage approach 

You may purchase cryptocurrencies using alternative methods, such as:  

• Crypto Exchange-Traded Funds (ETFs) 
• Purchasing stocks in organisations related to cryptocurrency 

It is important to consider if the popularity that cryptocurrencies have achieved over time is real. Cryptocurrency, particularly Bitcoin, has, even though it is still far from replacing institutionalised cash, gained widespread acceptability worldwide. 

They can be used as a mode of payment. Bitcoin was initially of limited value as a method of payment to retailers. But over time, many businesses, including eateries, airlines, jewellers, and apps, have begun to recognise it as a legitimate form of payment. 

Additionally, cryptocurrencies, particularly Bitcoin, are among the most profitable investment opportunities available. Its value growth is dynamic and may be a great route for capital growth. 

The price of cryptocurrencies is highly volatile and can change rapidly. Governments or financial institutions do not regulate cryptocurrencies, so their value is determined by supply and demand on the open market. The price of a cryptocurrency is also influenced by factors such as media coverage, public interest, and even rumours. 

Bitcoins are kept in a digital wallet, just like we store credit cards or cash in a physical wallet. Digital wallets can be web-based or hardware-based. The wallet can be stored on a desktop computer or mobile device or kept secure by writing the private keys and access addresses on paper. 

Some of the safest methods to keep cryptocurrency are in custodial and hardware wallets, but each has benefits and limitations. 

For certain companies, the use of cryptocurrencies may present opportunities. The advantages might include the following: 

• A crypto transaction often happens quickly. For instance, only a computer or smartphone is required to move Bitcoins from one digital wallet to another. 
• Cheaper and quicker money transactions and decentralised networks that do not have a sole point of failure are two benefits of cryptocurrencies.  
• Blockchain seeks to eliminate middlemen like banks and internet marketplaces, so there are no transaction costs. 

• Payments made using cryptocurrencies are becoming more common among big businesses and industries like fashion and medicine. 

Cryptocurrencies’ drawbacks include their unstable prices, high energy requirements for mining, and usage in illegal activities. Additionally, cyber attacks often target cryptocurrency exchanges, which might mean that you permanently lose your investments.