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Product Guide

Choosing an investment or financial product

When deciding whether to invest or trade, consider carefully the answers to the following questions that can be found on the pages noted below:

TYPES OF INVESTMENT

Investment transactions that are conducted over regulated markets/exchanges are termed as Exchange Traded Contracts. Transactions which occurs outside a formal market eg. transactions in unlisted securities or transactions involving listed shares, commodities and other Financial instruments which were not executed on an exchange are termed as Off Exchange Contracts. Off Exchange transactions are conducted through negotiation rather than an `auction' system and normally in today's sophisticated Financial markets are entered into with a counter party who is a Financial Intemediary and may termed as a market maker. These could be a Bank or a Financial institution, as the case may be.

Explained below are the types of investments that the client can make. The following pages try to define the major instruments that are mostly traded on an Exchange and while some may or may not be, Ellipsys will offer the contracts either on an EXCHANGE TRADED basis or on an OFF EXCHANGE TRADED basis.

The term "security" means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, transferable share, investment contract, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.

Financial Assets include stocks, bonds, and other "paper" contracts. Instead of representing the wealth of a society, they represent a record of the distribution and transfer of wealth within that society. It is possible to easily create and destroy financial assets without changing wealth. Financial Assets contribute indirectly to the productive capacity of a society by permitting separation and transfer of management, ownership, and investments in firms.

For purposes of this document, currency is defined as a unit of exchange issued by a Government for the purposes of trade. For the purposes of market data, if an object has a price, that price is given in terms of a currency. An exchange rate is the price of one currency given in a different currency.

Throughout much of history, currency was a real asset, typically gold or silver. Today, currency has many of the same attributes as a real asset, and many of a financial asset.

A note on the word ‘cash.’ Formally, "Cash" is the physical representation of units of currency. However, the business definition of Cash typically includes demand deposits and similar short-term instruments.

An equity is an ownership interest in a firm or a collection of assets. It entitles the owner to share of the net of the assets less the liabilities of the firm. In the U.S., the most common type of stock is, oddly enough, common stock. Common stock has the "last call" on the assets of a firm – it only has value after all other claims have been met. Many companies have different classes of common stock, which may have varying voting rights and restrictions. Any dividend paid is subject to future modification or elimination.

Another type of equity is preferred stock. Preferred stock is a hybrid between debt and common stock. Like a bond, it promises to pay owners a fixed dividend per period. Unlike a bond, there is no legal obligation to make this payment unless the firm wishes to pay a common stock dividend. In the United States, preferred stock suffers from several tax disadvantages, so a pure preferred stock issue is fairly rare. Convertible preferred stock, which adds an option to turn in the issue for common stock, is more common, especially for venture capital.

The equity component of an instrument is a primary security, in that its value relies solely on the status of an Economic Player and not on any other Instruments.

A futures contract is a standardized agreement, made on a recognized exchange, to buy or sell a specified quantity of a described commodity at an agreed date in the future. The purpose of such agreements is to provide those who deal in the traded commodities (which include financial commodities such as Bank Bills and Treasury Bonds) with a facility for managing the risks associated with changing prices for those commodities (including fluctuations in interest rates and share market indices). In addition to those who deal in the markets for the purposes of risk management there are also those who trade in the hope of profiting from changing prices in the traded commodities, ie. speculators.

Types of Futures Contracts

There are two kinds of futures contracts:

(1) one is an agreement under which the seller agrees to deliver to the buyer, and the buyer agrees to take delivery of, the quantity of the commodity described in the contract. Such contracts will be described in this document as deliverable contracts; and

(2) the other is an agreement under which the two parties will make a cash adjustment between them according to whether the price of a commodity or security has risen or fallen since the time of contract was made. Such contracts will be described in this document as cash settlement contracts.

Futures Contract Specifications

The terms and conditions of a futures contract are set out in the rules and regulations of the exchange on which the contract was made.

Futures exchanges exist in a number of countries and regions, including the United States of America, the United Kingdom, Europe, Asia, as well as Australia. The material in this document is intended to refer to any futures contract traded on any exchange, but there may be differences in procedure and regulation of markets from one country to another and one exchange to another. Futures contracts are made for periods of up to three years in the future, although the vast majority are for settlement within six months of the agreement being made. Part of the standardisation of contracts is that the time of the delivery or settlement is one of a series of standardised maturity times. Deliverable contracts involve an obligation to deliver or take delivery at maturity. It is not advisable to enter into such contracts in the last weeks before maturity unless actual delivery is contemplated.

A forward contract is a commitment to a transaction in the future. It may be a primary instrument, but not necessarily a security.

A derivative is any instrument whose return depends on the price of another instrument. While most people don’t think of them as derivatives, Options, Warrants, Money Market Funds, and Mutual Funds are all derivatives. So too are many more exotic instruments. An adjustable rate mortgage is not generally considered a derivative, as the rate depends on a metric (LIBOR, or the Prime Rate as published in a newspaper) rather than a given loan.

All derivatives are not primary instruments by definition. Derivatives are typically described in terms of the underlying instrument or instruments, metrics, and general descriptive terms

CFD is an agreement between two parties to exchange, at the close of the contract, the difference between the opening price and the closing price of the contract, multiplied by the number of shares specified within the contract. These can be options and futures on the FTSE 100 index, NASDAQ, or any other index globally, as well as currency and commodities. However, unlike other futures and options, these Contracts can only be settled for cash

Spot Contracts are an agreement for buying or selling a commodity, security or currency for settlement on the spot date, which is normally two business days after the trade date. The settlement price (or rate) is called spot price. A spot contract is different from a forward contract or futures contract where contract terms are agreed now but delivery and payment will occur at a future date.

Ellipsys Financial Markets is licensed and regulated by the Financial Services Commission as an INVESTMENT DEALER (Full Service Dealer excluding underwriting), Licence No: C111010125 in Mauritius.

As a client you are required to open an account with the Ellipsys by filling the Account Opening Form (this includes the Client Information and Risk Disclosure Document) and having received the requisite approvals from the Ellipsys for the same.

You are required to remit capital into the account which should cover the principal investment amount and the brokerage charged. Thus the amount held in the account is purely dependent on the client's discretion and portfolio requirements. This is known as Initial and Variation Margin which is explained in detail below:

Initial Variation Margin (Initial Margin) and Variation Margin

As mentioned above, there are two types of Variation Margins, namely initial Variation Margins (which are sometimes called Initial Margins) and Variation Margins.

To protect the financial security of Ellipsys and its various counterparties until Variation Margins are paid, each client in the market must put up a Initial Margin (also known as an initial) in order to trade. Contract Initial Margins are governed by the minimum set by Ellipsys or its counterparties or both and vary from time to time according to the volatility of the market in question. This means that an initial Variation Margin may change after a position has been opened, requiring a further payment (or refund on request) at that time. They are carefully calculated to cover the maximum expected movement in the market from one day to the next.

Ellipsys may call (which means demand payment) a higher Initial Margin than the minimum set to protect its personal obligation incurred when dealing on behalf of a client. Liability for Initial Margins occurs at the time of the trade, regardless of whether a call for payment is made.

Ellipsys is not obliged to call their clients for Variation Margins. Liability to pay Variation Margins occur as they are incurred, regardless if a call for payment is made or not. Initial Margins and Variation Margins must be paid immediately (this is generally taken to mean within 24 hours of the demand, although in times of extreme price volatility, this may mean as little as 1 hour). If a client does not pay a Variation Margin, Ellipsys is entitled to close out the client's position and deduct the resulting realised loss from the Initial Margin.

There are no charges levied on the client for opening an account. The charges for the monies remitted to the account are to be borne by the client.

No charges are levied for account closure, except for any expenses incurred by Ellipsys for transferring the amount in the account to the designated client account.

Brokerage is charged by Ellipsys for executing trades for the various investment instruments which are different for each type of vehicle. The detailed brokerage for the client is available in the Account Opening Form (Charges Schedule), and is applicable following consent by the client and Ellipsys to allow trading to commence.

The brokerage is charged to the account of the client following a trade execution being completed.

Ellipsys is an Investment Dealer and does not offer or promises any returns as the investments are made solely at the discretion of the client. Ellipsys acts solely as a executing agent/principal for the investments the client seeks.

Advice given by Ellipsys does not construe any promise to the client on any returns on the investment.

Investments can be risky, please refer to our Risk Disclosure Document and the other documents included in and accompanying the Account Opening Form for details on the risks involved in the instruments being traded.

The liability of a client under a contract is not limited to the amount of the Initial Margin made at the time the contract was opened. If, after paying a Variation Margin, the price continues to move against the client, further Variation Margins will be called and must be paid on demand. Variation Margin payments can therefore exceed the amount of the Initial Margin. Initial Margins (unless eroded by losses) are returned on settlement of the contract. Variation Margins become realised losses and are not refundable unless there is a favourable change of direction in market prices before settlement or closing out of the contract.

Contracts/investments can be exited by executing a sell or buy of that instrument to square the position held. The client must understand that for certain instruments, the brokerage is charged for buying as well as selling the instrument, whereas in other cases the brokerage is charged only once (when bought or sold) and covers the charge for squaring the same.

Any profits from the investments are credited to the client account. Withdrawals from the account can be made by submitting a withdrawal application to an Ellipsys accounts department.

The customer service division is available to the client for responding to queries on the clients investments.

The customer can also contact the Client Advisor designated to the client's account for any queries or any other requirements related to the customers account.

Queries can be forwarded to the following address:

Email: info@elpmarkets.com

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