Trading

Leveraged forex
Discretionary client agreement

In Hong Kong, you can carry out leveraged forex trading through a corporation licensed with the SFC for carrying out such regulated activity (hereafter referred to as "licensed corporation") or a bank. While licensed corporations are subject to the SFC's licensing and regulatory requirements, banks' leveraged forex business is exempt from registration with the SFC, and is not supervised by the SFC.

How to start trading leveraged forex?

As with securities dealing services, you would be asked to enter into a client agreement with the licensed corporation to open a trading account for carrying out leveraged forex trading. The client agreement must include terms of the services provided by the licensed corporation and all rights and obligations of the licensed corporation and you, such as the level of margin requirements, when margin deposits are payable, and the circumstances under which contracts can be closed out by the licensed corporation without your consent.

To operate your trading account, the licensed corporation may require you to identify yourself as the account holder (for example, by giving account password or personal particulars) before order placing. To ensure no other person can operate your account without authorization, you must not disclose your account information and your account password to another person. Being the account holder, you will be held liable for trades executed on your account.

If you want to authorize a third party to operate your account, you are reminded to assess whether the person you want to appoint as your representative would best serve your interests. For example, you should seriously consider whether it is appropriate to appoint an AE or a staff of the licensed corporation to operate your account.

What should I note if I use discretionary account service?

If you wish to authorize your AE to trade for you without first obtaining your instructions, i.e. to trade on a discretionary basis, you need to open a discretionary account with the licensed corporation. Consider carefully whether a discretionary account is necessary or suitable for you before opening one.

In setting up a discretionary account, your licensed corporation would require you to enter into a separate written discretionary account agreement. Your licensed corporation willaskyou to give a written authority for it to trade on your behalf and the authority is subject to annual renewal by you. Your licensed corporation will also need to explain to you the contents of the agreement, the risks of maintaining a discretionary account, and your rights and obligations under the agreement and its procedures in managing a discretionary account.

When managing a discretionary account, a licensed corporation is required to observe certain procedures including obligations to keep the client informed of the account performance and transactions carried out. For instance, whenever the net equity in a discretionary account falls during any one calendar month by more than 30% from the level at the beginning of that month, the licensed corporation should, among other things, notify the client immediately the level of net equity, the amount of trading loss, etc.

If a licensed corporation or its representatives cannot offer discretionary account service, such restriction will be stated as a condition on its licence.

However, regardless of the nature of your account, you should closely monitor the activities on your account and follow up on any irregularities with the licensed corporation or your professional adviser. If you have suspicion that misconduct has been perpetrated on your account, you should contact the SFC immediately.

What transaction documents are available to me?

You should receive contract notes (some firms may combine the contract notes with a daily statement of account) whenever a trade takes place, i.e. either you open or close out a position, on your account. The contract note/daily statement should include particulars of your account and name of the firm, details of the transactions, date and time of order receipt and execution, margin requirement. You should also receive a monthly statement of your account. It is important to ensure that the relevant transaction documents are received on time and that all details therein are correct.

What should I do when there is a trading dispute and what is meant by arbitration?

You should first escalate the matter to the complaints officer, of your licensed corporation for resolving the dispute in question. Contact details of a licensed corporation's complaints officer is available in the public register maintained by the SFC.

Under the law you may refer a dispute with a licensed corporation in relation to the trading of leveraged forex contracts to the Arbitration Panel established under the Securities and Futures Ordinance. You may contact the clerk to the Arbitration Panel, Hong Kong International Arbitration Centre, for the required procedures. The party who brings the dispute to arbitration is required to make an initial deposit of HK$1,000. Members of the Arbitration Panel are appointed by the Financial Secretary. The Arbitrator's ruling is final and binding. Besides, the unsuccessful party may have to bear the arbitration cost.