KoCoin Futures Risk Disclosure Statement

KoCoin Futures Risk Disclosure Statement

04/01/2020, 06:20:32

1. This Risk Disclosure Statement (this “Statement”) sets out the key risks of trading in the products of Perpetual Contracts (the “Products”). Please note that the key risks described in this Statement are not exhaustive. Unless the context otherwise requires or expressly provided herein, all words and expressions as defined in the navigation tab of “References”, shall have the same meanings when used or referred to in this Statement.

2. This Statement does not disclose all the risks and other significant aspects of trading in the above-mentioned Products. In light of the risks, you should undertake such transactions only if you understand the nature of the contracts (and contractual relationships) into which you are entering when you trade in these Products and the extent of your exposure to the risks. Trading in these products may not be suitable for many people. It is your sole responsibility to ensure that you understand all the relevant risks of the Products that you wish to consider trading in, as well as analyze, evaluate and understand the terms, features, arrangements, underlying cryptocurrencies, and all possible risks and other relevant implications and carefully consider whether such trading is appropriate for you in the light of your experience, objectives, financial resources, particular needs, risk appetite, and other relevant circumstances. You shall also be solely responsible for obtaining your own legal, financial and tax advice or other professional advice, as appropriate.

3. It is critical that you discharge your responsibilities set out above and in the other parts of this Statement or the References because of the limited scope of services that KuCoin Futures platform (the “Platform”) provides to you. Any services provided by the Platform to you are purely on an execution-only basis and solely upon your instructions. The Platform is not obliged to provide, does not provide, or purport to provide, is not providing and shall not be deemed to have provided any financial or investment advice or recommendation to you, nor made any representation or warranty to you as to the merits or suitability of your instructions or any Product (including their timing, probability of causing you losses, or any aspect whatsoever).

General Risks of Products:

The price or value of a Product will depend on fluctuations in the markets outside of anyone’s control. The past performance of any Product does not guarantee and is no indicator of future performance.

The nature and extent of risks in trading in the Products vary from time to time and Product to Product. These risks will vary with, amongst others things, the type of Product, their underlying cryptocurrency, their Quote Currency, fluctuations in the price of Bitcoin (being the settlement currency of all Products on the Platform), your particular needs and objectives, the location or domicile of the counterparty to the trade in the Product, the diversification or concentration in your portfolio (e.g. the amount invested in any one Product and the Products as a whole within your total portfolio) and the amount of leverage in any trade.

You should also be aware of the following specific risks which may apply to the following specific types of Products or generally across the Products:

(a) Perpetual Contract

(i) Effect of ‘Leverage’ or ‘Gearing’

Transactions in Perpetual Contracts carry a high degree of risk. The amount of initial margin is small relative to the value of the Perpetual Contracts, so that the transaction is highly ‘leveraged’ or ‘geared’. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit; this may work against you as well as for you. You may sustain a total loss of the initial margin funds and any additional funds deposited into your account on the Platform to maintain your positions in such Products. If the market moves against your position or margin levels are increased, your position will be taken over by the liquidation engine at the bankruptcy price.

(ii) Risk-Reducing Orders or Strategies

The placing of certain orders (e.g. ‘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.

(b) Additional Risks Common to the Products

(i) Terms and Conditions of Contracts

You should carefully review the References which you are trading on the Platform to understand the features of the Products and the associated obligations (e.g. including without limitation how the settlement price or mark-to-mark price value of the underlying cryptocurrency which is the subject of the Perpetual Contract is calculated; and, in respect of no expiration date and restriction on the time for exercise) and their impact on your profit or loss when transacting in such Product. You should note that by trading in the Products, you do not acquire any legal or beneficial interest in the underlying cryptocurrencies but will only have a contractual relationship with your counterparties in your respective trades on the Product only, and your rights will, therefore, be limited to contractual remedies against the counterparty in accordance with the terms of the relevant Product only.

(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.

Further, normal pricing relationships between the underlying cryptocurrency and the Products may not exist. This can occur when, e.g., the volume of interest in trading the Products is higher than the volume of interest in trading the underlying cryptocurrencies. The absence of an underlying reference price may make it difficult to judge ‘fair’ value.

(iii) Deposited Bitcoins

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

(c)Additional risks arising out of the Products’ underlying Bitcoin and other cryptocurrencies

In addition to the risks disclosed above, you should also be aware of the following risks in respect of trading in Products arising out of their deriving value from Bitcoin and other cryptocurrencies:

(i)Cryptocurrencies are not legal tender. They are not issued by any government and are not backed by any asset or issuer, nor do they have any intrinsic value. The trading of derivatives (including Perpetual Contracts) where the Underlying Instrument is a cryptocurrency is presently not subject to any regulatory oversight in Seychelles. Consequently, you should be aware that you may not have the full protection offered by the relevant Seychelles securities regulation.

(ii)Many jurisdictions do not regulate the issue or trading of cryptocurrencies. As such, many cryptocurrencies may have been issued by companies without any track record of profitability nor any obligation to forecast future profitability. Such cryptocurrencies may be very volatile and illiquid and carry a greater risk profile. As the Products are derivatives with such cryptocurrencies as the underlying, they may suffer from even greater volatility and illiquidity and you should therefore carefully assess if you are able to understand and tolerate the risk of trading in such Products. The value of such cryptocurrencies may have been built on its issuer’s ideas, plans, or visions to develop and maintain a platform on which such cryptocurrencies may be used, often documented within a white paper, website, and other marketing material including youtube videos or social media feeds (“Cryptocurrency Marketing Material”). We are not responsible for the accuracy or comprehensiveness of any information in any of the Cryptocurrency Marketing Material produced by any issuer of any cryptocurrency for the purposes of distributing, marketing or providing information on the cryptocurrency, and the content of such Cryptocurrency Marketing Material may also not have been reviewed by any regulatory authority in Seychelles or otherwise. The contents of such Cryptocurrency Marketing Material may, therefore, be inaccurate or incomplete, and may also be out of date, and you should conduct your own due diligence on the cryptocurrency or seek professional advice on the cryptocurrency if you have any doubts as to the contents of such Cryptocurrency Marketing Material. Because many offers of such cryptocurrencies are not subject to regulation or any prospectus requirements, such Cryptocurrency Marketing Material from the issuers of such cryptocurrencies as to their ideas, plans or visions may have been authored and published without any objective or reasonable basis and there can be no assurance that such ideas, plans or visions may materialize. The issuer may also have reserved to themselves a wide discretion to revise or amend these Cryptocurrency Marketing materials at any time. The failure of such ideas, plans, or visions may mean that the value of the relevant cryptocurrency is likely to decline drastically and may become valueless. The environment in which these issuers and cryptocurrencies are seeking to operate is also extremely and increasingly competitive which may adversely impact the value of the underlying cryptocurrencies. You should seek independent professional advice if you are uncertain of any aspects of the nature of such cryptocurrencies or the risk of trading in Products with such cryptocurrencies as the underlying.

(iii)Trading in cryptocurrencies can result in significant losses as the price of and markets in cryptocurrencies can be much more volatile than those of traditional fiat currencies. Transparency could be limited as there might be little publicly available information that could help you gauge the fair value of the cryptocurrency. This could lead to speculative forces driving up unit prices resulting in volatile price swings, or there could be a collapse in demand and prices.

(iv) The cryptocurrencies may have been issued while the issuer continued to seek legal advice on a number of matters including but not limited to the governance structure, operational plan, and the sale process for the cryptocurrency. Pending such advice, the features of the cryptocurrency may remain subject to changes that may have an impact on the cryptocurrency’s value.

(v)the protocol underlying the cryptocurrencies may be based on open-source code susceptible to third party attempts to hack, bypass, crack, hijack or otherwise introduce vulnerabilities that might result in security issues with the cryptocurrencies, the cryptocurrencies being more difficult to use safely, or the reputation of the cryptocurrencies being damaged, which in turn could harm any value or perceived value of the cryptocurrencies.

(vi)Because the cryptocurrencies are based on blockchain technology, any malfunction, breakdown, or abandonment of the relevant blockchain may also have a material adverse effect on the cryptocurrencies. Moreover, advances in cryptography, or technical advances such as the development of quantum computing, could present risks to the cryptocurrencies by rendering ineffective the cryptographic consensus mechanism that underpins the relevant blockchain on which the cryptocurrencies are built. The future of cryptography and security innovations are highly unpredictable, and this may have an impact on the value of cryptocurrencies.

(vii)As decentralized cryptographic tokens based on blockchain technology, the cryptocurrencies are susceptible to attacks by miners in the course of validating cryptocurrency transactions on the relevant blockchain, including, but not limited, to double-spend attacks, majority mining power attacks, and selfish-mining attacks. Any successful attacks present a risk to any value or perceived value of the cryptocurrencies.

(viii)The regulatory status of the cryptocurrencies and distributed ledger technology is unclear or unsettled in many jurisdictions, but numerous regulatory authorities across jurisdictions have been outspoken about considering the implementation of regulatory regimes that govern cryptocurrency or cryptocurrency markets. It is difficult to predict how or whether regulatory agencies may apply existing regulation with respect to such technology and its applications, including the cryptocurrencies. It is likewise difficult to predict how or whether legislatures or regulatory agencies may implement changes to law and regulation affecting distributed ledger technology and its applications, including the cryptocurrencies. Regulatory actions could negatively impact the cryptocurrencies in various ways, including, for purposes of illustration only, through a determination that cryptocurrencies require registration or licensing. Any such unfavorable regulatory development may impact the value or perceived value of the cryptocurrencies.

(ix)It is possible that alternative networks or platforms could be established in an attempt to facilitate services that are similar to those offered by the cryptocurrencies’ protocols, or alternative networks could be established that utilize the same or similar code and protocol underlying the cryptocurrencies. Such alternative networks may be able to copy, replicate, change, enhance, reproduce, re-engineer, modify, reprogram, or otherwise develop the same source code and/or underlying protocol and/or underlying technology of the cryptocurrencies. Such alternative networks or platforms may compete with the cryptocurrencies, which could negatively impact any value or perceived value of the cryptocurrencies.

(x)The protocol on which the cryptocurrencies are built may be open-source protocol, such that any member of the public may at any time develop a patch or upgrade for the source code of the protocol without prior permission by anyone else. The acceptance of patches or upgrades by a significant, but not necessarily overwhelming percentage of the blockchain’s users could result in a “fork” in the blockchain. The temporary or permanent existence of forked blockchains could adversely impact the operation of the blockchain or undermine the sustainability of the cryptocurrency’s ecosystem, and may destroy or frustrate the ecosystem. Further, it is theoretically possible for each branch of the forked blockchain to be further forked an unlimited number of times While a fork in the blockchain could possibly be rectified by community-led efforts to re-merge the two separate branches, success is not guaranteed and could take an undetermined amount of time to achieve. The above may have an adverse impact on any value or perceived value of the cryptocurrencies.

(xi)The cryptocurrencies are a new and relatively untested technology and their position as an asset class has been debated. In addition to the risks noted above, there may be other risks associated with the cryptocurrencies which cannot be anticipated. Such risks may materialize as unanticipated variations or combinations of the risks set out above.

As such, transactions in Products carry a high degree of risk as their value would be impacted by the above risks arising out of the underlying Bitcoins and other cryptocurrencies. You must, therefore, ensure that you understand the potential consequences and losses that you may incur when trading in cryptocurrencies before placing any order in respect of any Product. If in doubt, please seek independent financial advice.

(d) Commission and Other Charges

Before you begin to trade, you should obtain a clear understanding of all commissions, fees and other charges for which you will be liable. These charges will affect your net profit (if any) or increase your loss.

(e) Bitcoin Currency Risks

The profit or loss in transactions in the Products will be affected by fluctuations in the value of Bitcoin, as all transactions in and settlement of the Products, and therefore all calculations of your profits or losses on the Products, are denominated in Bitcoin. You will be exposed to foreign exchange or exchanges’ risk upon conversion from relevant currencies or cryptocurrencies in the Products to Bitcoin and from Bitcoin to your home currency.

(f) Trading Facilities

The Platform uses an electronic trading facility 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. You may suffer losses in relation to your trades in the Products as a result of such temporary disruption or failure. We are not liable for any such losses and you bear the risk of any such losses you may suffer.

(g) Electronic Trading

If you undertake transactions on an electronic trading system, you 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 your order is either not executed according to your instructions or not executed at all. You may suffer losses in relation to your trades in the Products as a result of such failure. We are not liable for any such losses and you bear the risk of any such losses you may suffer.

(h) Credit Risk or Counterparty Risk

As your trades in the Products are executed on a P2P basis, your trades may be subject to the credit risk that your counterparty on the opposite side of your trade may default. Although all participants transacting in Products on the Platform are required to deposit margins with the Platform in respect of their trades in the Products, in the event that the counterparty defaults, the counterparty may be unable to make good on their promise to make payment of any obligations they may incur in respect of their trades in the Products with you, and their deposited margins may not be sufficient to cover such obligations. This may reduce the net profit you gain (if any) or increase the net loss you suffer across all of your trades in the Products on the Platform.

(i) Nature of margined trades

“Margin” means an amount of cryptocurrency, representing a part of the value of the contract or agreement to be entered into, which is deposited by the buyer or the seller of a Perpetual Contract to ensure performance of the terms of the Perpetual Contract. In certain circumstances your losses on a Product may be unlimited. For instance, if you open a position with us by selling the contract in question (a practice known as “shorting a market”) and the price rises, you will make a loss on that Product and it is impossible to know the limit of your potential losses until you close your open position in the Product or we close your open position in the Product (for example, because you have failed to comply any margin calls we’ve made on you when your margins are insufficient to meet the maintenance margin required for your trades in Products). You must ensure that you understand the potential consequences of a particular Product and be prepared to accept that degree of risk.

(j) Volatility

Whether you make a profit or a loss will depend on the prices at which you trade in the Product and fluctuations in the price of the underlying cryptocurrency applicable to your Product. Neither you nor we will have any control over price movements in the underlying cryptocurrency. Price movements in the underlying cryptocurrencies can be volatile and unpredictable, and fluctuate dramatically. The prices of both the Products and the underlying cryptocurrencies may move up or down, and may become valueless, and therefore result in the loss of all or part of your principal sums invested. It is as likely that losses will be incurred as profits made as a result of your buying and selling of Products.

(k) Liquidity

A decrease in liquidity (a term which describes the availability of buyers and sellers who are prepared to deal in a Product’s market or the markets of the underlying cryptocurrencies) may adversely impact a Product’s price. If there is a significant reduction or a temporary or permanent cessation in liquidity in any Product or the underlying cryptocurrency of any Product, such events may be deemed an Event Outside of Our Control or Market Disruption Event (as applicable) under the General Terms and we may suspend trading or take any other action we consider reasonable in the circumstances. As a result, you may not be able to place trades in the Products or to close any open positions you may have in the affected Product.

(l) Transaction Risk

If you wish to close out your position in any trade-in Products, you accept that any reference price indicated on any Product depending on the Product Specifications may be indicative, and no guarantee as to their accuracy is given and no liability is accepted. You understand that all settlement amounts will be calculated on the prevailing market price at the time of your closing out of the relevant trade in the Product. The net profit you gain may be reduced (if any) or the net loss you suffer may be increased if the actual prevailing market price at the time the closing out of your trade is executed is lower than the reference price indicated when you placed your order for the closing out of the trade.

(m) Legal and Regulatory Risk

All Products could be exposed to regulatory, legal or structural risk. Returns on all Products are at risk from regulatory or legal actions and changes which can, amongst other issues, alter the rights and obligations in respect of any trade in a Product. Legal changes could even have the effect that a previously acceptable trade in a Product becomes illegal. Changes to related issues such as tax may also occur and could have a large impact on profitability. Such risk is unpredictable and can depend on numerous political, economic, and other factors.

(n) Tax Risks

By entering into any trade in any Product, you undertake that you are aware of the tax implications (including the implications of any applicable income tax, goods and services or value-added taxes, stamp duties and other taxes) of entering into and exiting the relevant trade. Different trades in different Products may have different tax implications as they would depend upon the nature of your business activities and the Products in question. For example, income or profit from trading in any Products may be subject to withholding tax or capital gains tax or other tax of the country of your counterparty in the trade, and in such event, unless the counterparty agrees to gross-up the amounts to which you are entitled under the trade, you will only receive such amounts less the withholding tax or capital gains tax or other tax. Such taxes may reduce the net profit, or increase the net loss, of any trade-in a Product entered by you. You should therefore consult your independent tax advisor to understand the relevant tax considerations.

(o) Quality of Products or underlying cryptocurrencies

You acknowledge that although the Platform may have conducted a risk assessment as part of its background check on any cryptocurrency underlying any Product offered on the Platform, this should not be taken as a guarantee of the quality of any particular Product or relevant underlying cryptocurrency or its return or a guarantee as to its suitability for you taking into account your investment objectives, financial situation and particular needs.

Furthermore, our decision to allow you to transact in any Product or not to restrict any Product may not necessarily have taken into account any of your particular circumstances. You therefore must always carefully consider the merits and risks of entering into a trade-in any Product and seek professional advice as you deem fit. We shall not be responsible for any loss suffered by you unless caused by fraud, gross negligence or wilful default directly attributable to us.

(p) Conflict of Interests

You should ensure that you have read and accepted all relevant Product Specifications and are aware of the roles and identities of the relevant persons related to the manufacture, administration, and distribution of the Products or the underlying cryptocurrencies of any Products prior to entering into any Product trades. You acknowledge that it is possible for the aforesaid parties, as well as your counterparty to any Product trade, to be the same entity or affiliated entities. You acknowledge that a conflict of interest may arise therefrom, for example, where there is a conflict between the interests of such entity, its affiliate(s), different customers of the aforementioned parties, and you. You, therefore, accept the risk that any of the aforementioned parties may, in its discretion, choose to exercise its discretion in a manner contrary to your interest.

(q) Simultaneous and Compounding Nature of Risks

You acknowledge that a Product may involve various risks and that you should only trade in a Product after assessing all such risks and relevant factors. More than one risk factor may have effect simultaneously such that the effect on the Product may be unpredictable. In addition, more than one risk factor may have a compounding effect, which may not be predictable. We give no assurance in relation to the effect that any risk factors or any combination of risk factors may have on the value of any of your Product trades.