Speculation is not the basis for loans


Speculative transactions are not suitable for obtaining loans. We urgently advise you not to take out loans for futures and option transactions because costs and interest from taking a loan may be added to the loss of the principle sum. Futures transactions have a negative effect on the customer's financial situation.


Individual customer account with broker and account mandate

With an individual broker account the customer opens an account through VATAS GmbH with and approved and regulated broker using which the futures transactions are processed. The customer is the sole owner of this account. He maintains adequate coverage for his speculation transactions on this account. Without adequate coverage the broker will not execute the transactions for the customer.

VATAS GmbH arranges the customer's speculation transactions in line with the provisions of the agreements reached and the power of attorney given. The customer's payments are made in this case directly to his account with the broker.


Accessing the account, the problem of "churn"

If the customer can not or does not want to concern himself with accessing his account he has the option of entrusting a third party, e.g. an account or asset manager, to access it as he sees fit (discretionary account). The payment of the manager is usually only or mainly from commissions incurred for each transaction. In this case there is a conflict of interests between the customer and manager (and any arranger or broker). The manager (and arranger or broker) earns more when the customer makes more transactions at his recommendation. If transactions are made without considering the customer's speculative interests but rather mainly or exclusively due to the commission interests of the manager this is called "churn". The customer should check his account for such occurrences.

A comparable problem occurs if the customer or his authorised manager works with so-called stop loss orders. If the rate points that cause a closing order to be issued are set too tightly the customer is also disadvantaged as a result of the high cost of commissions by frequently entering and leaving the market.


Orders, stop loss technique and their risks

Orders to the arranger or broker to implement a transaction are permissible in any form as long as they are complete and understandable. The minimum requirements for an order are: Sale or purchase, for an option also put or call, the item to which the contract relates (futures, financial title, security, currency etc.), number of contracts or trading place or stock exchange at which the transaction is to be executed, the future month, the strike or base price or price condition and the duration for which the order applies.

Since the transaction is quick specialist terminology has developed to succinctly reflect the key characteristics of an order (best, cheapest, market, limit, stop, stop limit, MIT etc.). Those using this specialist terminology must be very familiar with it. It is in common use in the industry. Those who do not understand it properly must bear the consequences of this.

Caution: So-called stop orders, orders that are executed when a certain price or rate is reached, do not protect the investor from losses. If the rate is reached they are executed at so-called market orders that are carried out as best or cheapest, i.e. they could end at a very different rate from the stop rate. The customer is therefore also exposed to a loss risk that goes beyond the stop price.

If in addition stop loss prices are set too closely to the entry rate, the customer must expect to close out his position more frequently than necessary and this will incur more commission. The purpose of avoiding losses in the market changes into the opposite of producing a loss due to excessive advice and transaction costs.

Not every stock exchange or broker is willing to accept complicated orders, especially certain kinds of conditional orders, as these sometimes require complicated monitoring of the account. If the customer has unusual orders he should first clarify whether the order is even accepted in this form.


Currency risk and customer settlement

In general transactions are made in foreign currencies and customer settlement reflects the success or failure of the speculative investment in the foreign currency, even if the customer settlement should be shown in euros. Therefore he bears the currency risk of the transactions as well as the risk that the exchange changes unfavourably when the sums are paid or credited, e.g. the US dollar falls. This can in particular be the case if the broker account is held in US dollars.