Here are some answers to our commonly asked questions.
Question 1: Binaries and Options trading
Do you understand that Binaries and Options are different from FX and CFDs and are subject to greater market volatility as well as different trading terms and conditions by reading 'Option CFD trading', a supplementary provision of the 'Statement of Important Matters,' carefully before proceeding with your application?
Binaries and Options are different from other FX and CFDs we offer in terms of market volatility and trading terms and conditions. While your risk is limited on buying Binaries and Options, it is unlimited when selling Options. Also, we set expiry dates for Binaries and Options and there may be higher volatility near/on expirations. Please read 'Option CFD trading', a supplementary provision of the 'Statement of Important Matters' to ensure you fully understand the characteristics of Options trading.
Question 2: Leverage
Do you understand that by using "leverage" it is possible to make CFD trades (including foreign exchange margin transactions) using an amount of margin (collateral) that is smaller than the actual transaction amount, and that the principal amount of your margin deposit is not guaranteed?
1. "Leverage" refers to the principle of the lever which makes it possible to move a large object with a small force. By using a small amount of capital (margin), it is possible to conduct large trades. The ratio of such "large trades" to capital (margin) is called "leverage".
For example, if you conduct a transaction of $5000 when the USD-JPY exchange rate is $1=Y100, in order to make a US dollar-denominated bank deposit in this amount you would need Y500,000 (Y100 x $5000), not taking into account lifting charges. This reflects a leverage ratio of 1x. With foreign exchange margin trading through PureDeal at the standard leverage setting of 50x, it is possible to conduct a trading using only Y10,000 (Y500,000÷50).
Similarly, when using Y500,000 for a foreign currency bank deposit in the above example, the maximum transaction amount would be $5,000, but at the standard leverage ratio of 50x, it is possible to make a trade of $250,000 (Y25,000,000).
Accordingly, it is possible to generate large profits from changes in trading rates, but the principal amount of margin deposits is not guaranteed, and it is also possible to suffer large losses in a short period of time. In the event of significant fluctuations, your losses may exceed the amount of your margin.
Question 3: Forced settlement
Do you understand that "forced settlement" may cause all pending orders to be cancelled and the mandatory liquidation of your open positions if the amount of your effective margin balance drops below the amount of your maintenance margin (i.e., the surplus amount becomes negative)?
In order to prevent the spread of losses, in addition to "stop (loss) orders" placed by customers themselves, PureDeal has an "forced settlement (mandatory settlement)" feature.
With IG Markets' "forced settlement", all or some of your pending orders will be automatically cancelled by the trading system when the amount of your "effective margin balance (your margin balance + unrealised profits or losses) falls below the amount of your maintenance margin (i.e., the amount of your surplus becomes negative). If your surplus amount is still negative after doing so, all or a portion of your open positions will be mandatorily liquidated by the trading system.
In normal conditions when price movements are small, this arrangement leaves in your account a margin balance that is close to your maintenance margin amount. However, in the event of large fluctuations in trading rates, it is possible for you to suffer losses in excess of the amount of your margin deposit. If this happens you must immediately deposit additional funds to make up the shortfall.
IG Markets Securities Japan's "automatic forced settlement" operates automatically and on an ongoing basis in accordance with the following principles until your "effective margin balance" is greater than your "maintenance margin amount". There are times when trading is not possible depending upon the share or currency pair. If this is the case, the applicable positions will not be liquidated, with the next oldest position being liquidated instead. (Please note that customers may not choose which pending orders are cancelled or the order in which positions are liquidated).
1. Pending orders will be cancelled in order of oldest to newest (by order date).
2. Open positions that do not have stop orders on them will be liquidated in order of oldest to newest.
3. Open positions that have stop orders on them will be liquidated in order of oldest to newest.
Question 4: Slippage
Do you understand that automatic forced settlement and stop (loss) orders may result in trades taking place at a rate significantly different from the designated rate, if trading rates experience large fluctuations?
* For additional information on "automatic forced settlement (mandatory settlement)" please see Question 3.
Market rate orders are placed when trading rates reach the automatic forced settlement price threshold in the case of forced settlement or the specified order rate in the case of stop (loss) orders. Accordingly, there may be a difference between the price at which such orders are placed and the price at which the trade actually takes place. This difference is called "slippage". Slippage is particularly likely to occur and intensify before and after the announcement of economic indicators such as U.S. employment figures, or when events having a significant impact on markets occur and result in sudden price movements. Furthermore, because 24-hour trading is not possible in the case of share price index CFDs and share CFDs, prices at the start of a trading day may be significantly different from the price at the end of the previous trading day. In the case of foreign exchange margin trading, the closing price at the end of the week may be quite different from the opening price at the start of the following week.
When automatic forced settlement happens or stop (loss) orders are carried out, sudden and dramatic price changes may result in trades being conducted at significantly different prices and it is possible that you will suffer significant and unexpected losses. In some cases you may suffer losses in excess of your margin deposit. If this happens you will be required to immediately deposit funds to make up your margin shortfall. If you use our guaranteed stop, you will incur additional costs in the form of guarantee fees, but your position will always be liquidated at the stop level, regardless of dramatic market fluctuations.
Please see Question 5 for additional information on automatic forced settlement.
Question 5: Negative Accounts
Do you understand that even when automatic forced settlement takes place, you may suffer losses in excess of the amount of your margin deposit if there are significant fluctuation in trading rates, and that if this happens you will be required to immediately deposit funds to make up the shortfall?
With IG Markets' automatic forced settlement, when your effective margin balance falls below the amount of your maintenance margin, all or some pending orders will be cancelled and orders liquidating all or some of your positions may be placed. This way, in normal conditions when price fluctuations are small, a margin balance close to the amount of your maintenance margin will remain in your account. However, when there are sudden dramatic price movements and forced settlement occurs, a trade may take place at a rate significantly different from the trading rate at the time when your margin balance fell below your maintenance margin amount. This may result in you suffering losses greater than the amount of your margin deposit. If this happens you will be required to immediately deposit funds to make up the shortfall.
Question 6: Variable spreads
Do you understand that our offered "spreads" (the difference between buy and sell prices) may change due to market conditions?
As with trading rates, spreads change with market movements. In the case of share price index CFDs, spreads widen at times when the underlying indices are not being traded. In the case of share CFDs, we generally indicate the stock exchange buy and sell prices for the underlying shares. As a result, spreads are not fixed. Spreads for foreign exchange margin trading may also fluctuate. In particular, spreads are thought to widen in the event of natural disasters, wars or acts of terrorism, when significant international conferences or other events are commenced, and when economic indicators are published. Weekends, week-beginnings and foreign holidays (Christmas, etc.) may also result in a drop in liquidity in foreign exchange markets. Spreads may widen in such markets. Please note that if the widening of spreads results in a reduction of your effective margin balance, your positions may be subject to automatic forced settlement. Please see Question 3 regarding automatic forced settlement.
Question 7: Hedging trades
By checking "force open" when you place your order, it is possible to conduct "matching" by simultaneously holding buy and sell positions in the same share or currency pair. Do you understand how to do this? Do you also understand that there may be no economic rationale for conducting matched trades and that we do not actively recommend such transactions?
With PureDeal it is possible to "hedge" trades by holding both buy and sell positions. To conduct matched trades with PureDeal, please check "force open" when you place an order for a position opposite to one you already hold (if you have a buy position, place an order for sell, and a buy order if you have a sell position). Also, if you place a new leave order for a position opposite to one you already have, it will automatically be matched. If you do not check "force open" the position you have will be liquidated.
Note that "hedge" transactions may not be economically rational and have the following disadvantages. Accordingly, we do not actively recommend such transactions.
1. Because there is a differential (spread) between funding costs and swap points for buy and sell positions, a payment obligation arises when they are rolled over, reducing your margin balance.
2. Because there is a differential (spread) between buy and sell prices, you will have to bear the cost of double spreads, and your gross profit/loss will be worsened to the extent of these spreads.
3. Because share CFDs are subject to commissions, matching trades will double your commission expenses.
Furthermore, when matching "buys" and "sells" in the same lot numbers, profits and losses will be realised in the currency of the applicable share or currency pair, but will be converted into your account currency (Japanese yen or dollars) meaning that profit and loss may fluctuate in the account currency.
Question 8: Swap points
With "swap points", when comparing the interest on a currency pair, you will generally receive the difference in interest if you have a position buying the currency with the higher interest and selling the currency with the lower interest. However, if you have a position that is selling the higher interest currency and buying the lower interest currency, you will have to pay the difference. Do you understand this? Do you also understand that swap points fluctuate every day depending upon market conditions, and a position in the same currency pairs can change from a "receive" to a "pay" position? Do you understand that currency pairs with low liquidity may result in a "pay" situation for both "buy" and "sell" positions? Do you understand that swap points are affected by holidays which may result in them not being paid/received even if rolled over, or in the settlement of up to four days' worth of swap points at once?
Foreign exchange margin trading involves the simultaneous buying and selling of two currencies. For example, a US dollar/Yen (USD/JPY) trade would involve buying dollars and selling yen, or selling dollars and buying yen.
Because you will receive interest on the purchased currency but must pay interest on the sold currency, if you buy the higher interest currency and sell the lower interest currency, you will receive the interest differential. However, if you buy the lower interest currency and sell the higher interest currency, you must pay the interest differential.
These interest differentials are referred to as "swap points". Receipt or payment of swap points will be conducted (at 7 A.M. Japan time or 6 A.M. if summer time applies in the United States) for positions you hold overnight. "Swap points" are calculated daily by IG Markets based on market interest rates (etc.) in different countries. Accordingly, even if your position is in a "receive" position, the amount you receive may be reduced or your position may change to "pay" due to subsequent fluctuations in market interest rates. Payment of swap points may also trigger automatic forced settlement. In the case of currency pairs having low liquidity, you may have to pay swap points on both buy and sell positions regardless of market interest.
Swap points resolve the interest differentials arising in trades that have extended delivery dates. On holidays there is no delivery of foreign exchange transactions so rollovers may not take place. In addition, during Golden Week and the Christmas and New Year season, rollovers may be for four days or more.
Question 9: Margin requirement for orders to open
Do you understand that maintenance margin will be required when you place new leave orders?
With PureDeal, maintenance margin is required not just for open positions but also with respect to unexecuted new leave orders. Accordingly, leave orders in excess of your available margin will not be placed. With respect to placing stops on positions, or the placing of limits, because positions are already subject to maintenance margin, no additional maintenance margin is required.
Question 10: Halt of trading
Do you understand that trading may be temporarily impossible, that mandatory cross trades may be placed, and that trading may suspended with respect to shares or currency pairs offered by PureDeal due to trading halts triggered by high or low trading thresholds, drops in liquidity, the delisting of underlying assets or government regulations?
Unlike regular foreign exchange margin transactions, share price index CFDs and share CFDs cannot be traded on a 24-hour basis. In addition, if trading in the underlying share or share price index futures is halted by the applicable exchange due to the triggering of high or low trading thresholds or circuit breakers etc., it may also not be possible to trade them with PureDeal. In the event that underlying shares of a share CFD are delisted, PureDeal will place a mandatory offsetting cross trade and trading will be suspended. Furthermore, in the case of all CFD transactions including foreign exchange margin transactions, a sudden drop in liquidity of the underlying share price index, share or foreign currency may result in buying and selling being temporarily or permanently rendered impossible. Furthermore, if short selling of shares is difficult due to restrictions on share lending or a shortage of circulating shares, or if applicable national authorities restrict short selling, even if settlement of outstanding positions is possible, it will not be possible to make new shorting commitments.
Question 11: CFD Transactions
Do you understand that CFD transactions (including foreign-exchange margin transactions) are negotiated transactions, and that the prices provided on PureDeal may not conform to other available information (prices on stock exchanges, foreign exchange rates offered by other companies, TV news etc.)?
CFD transactions including foreign exchange margin transactions are one-on-one negotiated transactions between IG Markets and its customers. Prices for trades offered by IG Markets to its customers are determined solely by IG Markets based on near real-time prices for the underlying assets and our own prognosis of market movements (etc.). Share price index CFDs, in particular, correspond closely with movements in the underlying indices, but we may sometimes offer different prices that reflect movements in futures markets, etc. Accordingly, prices offered by IG Markets may not always match prices which customers are otherwise aware of.
Question 12: Funding costs
Do you understand that "funding costs" apply to share price index CFDs and share CFDs and that you will generally pay them in the case of buy positions and receive them in the case of sell positions?
"Funding costs" apply to share price CFDs and share CFDs. You will pay funding costs on buy positions and receive them on sell positions. Funding costs are paid or received based on one day's interest at a level derived from the basic interest rate in the applicable country or countries, with an additional interest margin that is added in the case of buy positions and subtracted in the case of sell positions. In the case of low-interest countries, you may not receive any funding costs. However, in neither buy nor sell positions will funding costs be negative.
Question 13: Dividends
Do you understand that with share price index CFDs or share CFDs you will generally receive (in the case of buy positions) or pay (in the case of sell positions) an amount corresponding to dividends?
"Delivery and receipt of amounts corresponding to dividends" is applicable to share price index CFDs and share CFDs; with buy positions you will receive dividends and with sell positions you will pay them. Payment and receipt of dividends takes place when dividend payments are made on the underlying share or shares in the underlying share price index. Depending upon the tax system of the applicable nation(s), the full amount of dividend may not be paid or received.
Question 14: Maintenance Margin
Do you understand that with PureDeal the amount of your maintenance margin may be changed without prior notice due to market conditions, etc.?
With PureDeal, when market conditions such as a drop in market liquidity or sudden volatility apply, your maintenance margin rate may be increased without prior notice. With share CFDs, in particular, if the creditworthiness of the applicable company drops or other sudden changes occur, your maintenance margin rate may be increased significantly. If this happens, the maintenance margin for pending orders may become quite large, reducing your surplus and resulting in the cancellation of pending order and automatic forced settlement of your positions.
Question 15: Commission
Do you understand that commissions apply to PureDeal share CFDs?
Of the CFD trades available through PureDeal, you will pay commissions on share CFDs. Thus, in addition to the spread between buy and sell prices, you will also incur commission expenses. There are no buying or selling commissions on foreign exchange margin or share price index CFD transactions.
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