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Risk Disclosures Statement
Risk Disclosures Statement
Updated over a week ago

FlexInvest is a brand registered by Investium Limited. Investium Limited is authorized and regulated by the Cyprus Securities and Exchange Commission (“CySEC” or the “Commission”), with CySEC License number 421/22, is registered with the Registrar of Companies under number HE412142, and has its registered office at 6 Nikou Georgiou, Office 302, 1095 Nicosia, Cyprus.

1. Introduction

Following the implementation of the Markets in Financial Instruments Directive 2014/65/EU (“MiFID II”) and in accordance to the provisions of the Investment Services and Activities and Regulated Markets Law of 2017 (the “Law”), Investium Limited (the “Company”) aims to provide information to its clients about general Investment Risks and Risks associated with different categories of Financial Instruments.

2. General

Every type of Financial Instrument has its own characteristics and entails different risks depending on the nature of each investment. A general description of the nature and the risks of financial instruments is summarized below. However, this document does NOT disclose all the associated risks or other important aspects of the financial instruments and it should NOT be considered as investment advice or recommendation for the provision of any service or investment in any financial instrument.

The Client should NOT carry out any transaction in these or in any other financial instruments unless he is fully aware of their nature, the risks involved and the extent of his exposure in these risks. In case of uncertainty as to the meaning of any of the warnings described below, the Client must seek an independent legal or financial advice before taking any investment decision.

The Client should also be aware that:

  • The value of any investment in financial instruments may fluctuate downwards or upwards, and the investment may diminish to the extent of becoming worthless,

  • Previous returns do not constitute an indication of a possible future return,

  • Trading in Financial Instruments may entail tax and/or any other duty,

  • Placing contingent orders, such as “stop-loss” orders, will not necessarily limit losses to the invested amounts, as markets may fluctuate more than expected, and

  • Changes in the exchange rates, may negatively affect the value, price and/or performance of the Financial Instruments traded in a currency other than the Client’s base currency.

3. Investment risk

Market Risk: is the risk that the value of a portfolio will decrease due to the change in value of the market factors such as stock prices, interest rates, exchange rates and commodity prices. In case of a negative fluctuation in prices, investors in financial instruments run the risk of losing part or all of their invested capital.

Systemic Risk: is the risk of collapse of the entire market or the entire financial system. It refers to the risks imposed by interdependencies in a system or market, where the failure of a single entity or cluster of entities can cause a cascading negative effect, which could potentially bring down the entire system or market.

Credit Risk: is the risk of a borrower's failure to repay a loan or otherwise meet a contractual obligation (i.e. failure to pay interest to bond holders). Credit risk is closely tied to the potential return of an investment, the most notable being that the yields on bonds correlate strongly to their perceived credit risk.

Settlement Risk: is the risk that a counterparty does not deliver a security or its value in cash per agreement when the security was traded after the other counterparty or counterparties have already delivered security or cash value per the trade agreement. This risk is limited where the investment involves financial instruments traded in regulated markets because of the regulation of such markets. This risk increases in case the investment involves financial instruments traded outside regulated markets or where their settlement takes place in different time zones or different clearing systems.

Liquidity Risk: is the risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss. Liquidity risk becomes particularly important to investors who are about to hold or currently hold an asset, since it affects their ability to trade.

Operational Risk: is the risk of business operations failing due to human error. Operational risk will change from industry to industry and is an important consideration to make when looking at potential investment decisions. Industries with lower human interaction are likely to have lower operational risk.

Foreign Exchange Risk: is the risk of an investment’s value being affected by changes in exchange rates.

Country Risk: is the risk that an investment's returns could suffer as a result of political changes or instability in a country. Instability affecting investment returns could stem from a change in government, legislative bodies, other foreign policy makers, or military control.

Interest Rate Risk: is the risk that an investment's value may change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve, or in any other interest rate relationship.

4. Financial instruments and related risks

Stocks/Shares: represent ownership in the share capital of a company. Investors are exposed to all major risks mentioned in section 3 above and in particular to market risk. It must be emphasized that there are no guarantees when it comes to individual stocks. Some companies pay out dividends, but many others do not. Without dividends, an investor can make profit on a stock only through its price appreciation in the open market. On the downside, in case of the company’s insolvency, the investor may lose the entire value of his investment.

Fractional Stocks/Shares: Fractional Stocks/Shares allow investors to participate in the share performance of an issuer by way of an instrument that tracks the share price but is available at a smaller purchase price, namely the pro rata share price of the underlying share. Fractional Stocks/Shares usually allow the investor to receive the economic benefits stemming from dividends, but normally do not carry voting rights. Fractional Stocks/Shares enable investors to access fractions of shares by way of derivatives, which derive their value from the price of an underlying corporate share. Derivatives on fractions of shares are not corporate shares. To this end, the client is not being offered a fraction of a corporate share. On the contrary, the client is buying a derivative instrument, which grants him rights inherent to corporate shares such as dividends but not voting rights. Additionally, Fractional Stocks/Shares are subject to the risks of section 3, particularly counterparty and liquidity risks.

Warrants: companies will often include warrants as part of a new-issue offering to entice investors into buying the new security, usually at a discount. A warrant is like an option. It gives the holder the right but not the obligation to buy an underlying security at a certain price, quantity before expiration. The Warrant is invariably limited in time, with the consequence that if the investor does not exercise or sell the Warrant within the pre-determined timescale, the Warrant expires with no value. Warrants do not pay dividends nor have voting rights.

An investor can leverage their position in a security, using warrants, as well as hedge against downside.

A relatively small fluctuation in the price of the underlying security may lead to a disproportionately larger fluctuation, favourable or unfavourable, to the price of the Warrant. The price of Warrants can therefore be very volatile. Before the purchase of a Warrant, the investor must be aware that there is a risk of losing the whole amount of his investment as well as any commissions and costs incurred. Warrants are subject to all of the major risks mentioned in section 3.

Rights: a security giving stockholders entitlement (but not the obligation) to purchase new shares issued by the corporation at a predetermined price (normally at a discount) in proportion to the number of shares already owned. Rights are issued only for a short period of time, after which they expire. If the Right is exercised, its holder is required to pay to the issuer the exercise price. The exercise of the Right will give its holder all the rights and risks of ownership of the underlying security. Rights can be left to expire or even sold.

Fixed Income Securities/Bonds: are debt securities that provide a return in the form of fixed or variable periodic payments and the return of principal at maturity. Bonds can be issued either by governments (government bonds) or companies (corporate bonds). In this sense, Bonds represent a form of government or corporate borrowing. The credit risk of governments, financial organisations, corporations and generally of any Bond issuer may be rated by Credit Rating Agencies. The result of these ratings constitutes a valuable guide for investors in Bonds. Bond issues of lower credit ratings tend to offer higher coupons to compensate the investors for the higher risk they assume. Some Bonds trade on recognised stock exchanges while many trade outside regulated markets (OTC). Liquidity usually differs between various types of Bonds.

Bonds are subject to credit risk where the issuer of the Bond may not be financially solvent to pay to investors’ interest or even the principal of the Bond. Interest rate risk is the risk where increases in interest rates may cause significant decrease in the market value of a fixed-rate Bond and where decreases in interest rates may affect the reinvestment of the coupon payments of a fixed-rate Bond. When interest rates increase, a Bond issued previously carrying lower fixed rate may decrease in value. To this extend, the longer the maturity (duration) of the Bond the higher its sensitivity to changes in interest rates.

Convertible Bonds: give the holder the option to exchange the bond for a predetermined number of shares in the issuing company. When first issued, they act just like regular corporate bonds with a slightly lower interest rate, compared to what a fixed bond could pay, and can be converted to shares.

Callable Bonds: are bonds that can be redeemed by the issuer prior to their maturity. Any difference between a Bond’s call price and nominal value is the call premium. Call provisions expose investors to additional risks and are therefore issued with higher yields than comparable Bonds with no such provisions.

Collective Investment Schemes: involve an arrangement that enables a number of investors to ‘pool’ their assets and have these professionally managed by an independent fund manager. Investments typically include bonds and shares of listed companies but depending on the type of the scheme, they may include broader investments such as property. The ability to liquidate certain Schemes may be limited, depending on the terms of operation and the long-time period of notice required for redemption during which the value of each unit may exhibit high volatility and possibly decrease in value. It is possible that there is no secondary market for such Schemes and hence such an investment may be liquidated only through redemption.

Hedge Funds: are aggressively managed portfolios of investments that use advanced investment strategies such as leverage, long/short and derivative positions in both domestic and international markets with the goal of generating high returns (either absolute or over a specified benchmark). Hedge funds are considered a riskier investment than traditional funds and are suitable for more experienced investors, since they are not regulated and lack transparency. They usually invest in risky or illiquid securities and although they target absolute returns, if they fail to manage risk, they may realise significant losses. Beyond the liquidity risk, Hedge Funds have the ability to leverage which means that a relative small fluctuation in the price of the underlying security may lead to a disproportionately larger fluctuation, favourable or unfavourable, to the value of the investment.

Exchange Traded Funds (ETFs): are securities that track an index, a commodity or a basket of assets, but trade like a stock on an exchange. ETF prices change throughout the day as they are bought and sold. Investment in ETFs expose investors to the same risks as the underlying securities but to a significantly lower degree due to the diversification of investments.

Money Market Instruments: are usually debt securities which mature in one year or less (Treasury Bills), or money market funds comprising of fund of funds which invest in debt like securities. Risks related to this type of instruments are the liquidity risk, interest rate risk and credit spread risk.

Futures: are financial derivative contracts obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The futures markets are characterized by the ability to use very high leverage relative to stock markets. Therefore, a relatively small fluctuation in the price of the underlying asset may lead to a disproportionately larger fluctuation, favourable or unfavourable, to the price of the future.

Options: are financial derivatives that represent a contract sold by one party (option writer) to another party (option holder) and trade on exchanges or Over-the-Counter (OTC). The contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date). Their value is derived from the market value of the underlying asset (shares, currencies, interest rates, commodities, financial indices or any combination) and its volatility, the time up to maturity as well as the interest rates.

Call options provide the option to buy at certain price, therefore the buyer would benefit from an appreciation of the stock’s price, while put options give the option to sell at a certain price, therefore the buyer would benefit from a depreciation of the stock’s price.

Options are extremely versatile securities that can be used in many different ways. Traders use options to speculate, which is a relatively risky practice, while hedgers use options to reduce the risk of holding an asset.

Swaps: are derivatives in which counterparties exchange certain benefits of one party's financial instrument for those of the other party's financial instrument. The benefits in question depend on the type of financial instruments involved. For example, the most common type of Swap is the Interest Rate Swap. In interest rate swaps, one contracting party agrees to pay to the other contracting party a fixed interest rate on a pre-agreed principal amount for a specific time period. In exchange, he receives a floating interest rate on the pre-agreed principal for the specific time period. The principal in such type of Swaps is usually not exchanged. At every settlement date, payments of the contracting parties are netted so that there is only one payment made from the contracting party with the greater liability. Interest Rate Swaps are usually used to convert a floating rate loan into a fixed rate one or/and vice versa.

Another common type of Swaps is the Currency Swap where the contracting parties exchange a specific amount in different currencies for a specific time period. With Currency Swaps, there is an exchange of principal both at the inception and termination of the agreement, while the payments between the two contracting parties at the settlement dates are not netted since they are in different currencies. In such Agreements, there is no foreign exchange risk since the exchange rate is determined at the inception of the agreement.

Depending on whether the investor wishes to be hedged against a possible rise or fall in the prices of the related commodity, he takes the appropriate “position” in the swap agreement (that is to pay a fixed or floating price). Even though no initial premium is required, in case the market “moves” against the investor then he may be required to pay the amount corresponding to the difference owed.

Swaps include both credit and interest rate risk. Currency Swaps entail greater credit risk than Interest Rate Swaps due to the exchange of principal both at the inception and termination of the agreement as well as the payments from both parties at every settlement date.

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