Exchange Traded Derivatives Professional Client Agreement

Exchange-traded derivatives are not preferred by large institutions because of the characteristics that make them attractive to retail investors. For example, standardized contracts may not be useful for institutions that typically trade large quantities of derivatives because the notional value of exchange-traded derivatives is lower and they are not adjusted. Exchange-traded derivatives are also fully transparent, which can be a barrier for large institutions that generally do not want their trading intentions to be known to the public or their competitors. Institutional investors typically work directly with issuers and investment banks to create tailor-made investments that provide them with exactly the risk and return profile they are looking for. The derivatives exchange itself acts as counterparty to any transaction involving an exchange-traded derivative, effectively becoming the seller for each buyer and the buyer for each seller. This eliminates the risk that the counterparty to the derivatives transaction will not meet its obligations Exchange-traded derivatives are well suited for retail investors as opposed to their OTC cousins. In the OTC market, it is easy to get lost in the complexity of the instrument and the exact nature of what is being traded. An exchange-traded derivative is a financial contract that is listed and traded on a regulated exchange. Simply put, these are derivatives that are traded in a regulated manner. Exchange-traded derivatives have become increasingly popular due to the advantages they offer over over-the-counter (OTC) derivatives, such as normalization, liquidity, and elimination of default risk. Futures and options are two of the most popular exchange-traded derivatives. Exchange-traded derivatives can be used to hedge exposure or speculate on a wide range of financial assets such as commodities, stocks, currencies and even interest rates.

In this regard, exchange-traded derivatives have two major advantages: another defining feature of exchange-traded derivatives is their valuation characteristic at market value, where the gains and losses of each derivative contract are calculated on a daily basis. If the client has suffered losses that have undermined the margin obtained, he must replenish the required capital in a timely manner or risk that the derivative position will be sold by the company. The exchange has standardized terms and specifications for each derivative contract, allowing the investor to easily determine how many contracts can be bought or sold. Each individual contract also has a size that is not a deterrent for the retail investor. Exchange-traded derivatives can be options, futures, or other financial contracts listed and traded on regulated exchanges such as the Chicago Mercantile Exchange (CME), the International Securities Exchange (ISE), the Intercontinental Exchange (ICE) or the LIFFE Exchange in London, to name a few. .