Description of risks

General risks:

  • National / political risk:
    Risk relating to the political or economical stability of the country where the financial instruments are registered.
  • Currency risk:
    Risk arising when foreign currencies rates fluctuate against the currency in which the financial instruments were acquired.
  • Liquidity risk:
    Risk caused by insufficient market liquidity, as a result of which it’s impossible to execute the transaction at the conditions negotiated with the customer.
  • Price risk:
    Risk of loss because of changes in prices of financial instruments.
  • Credit risk:
    Risk arising from partial or complete insolvency of the borrower.
  • Interest rate risk:
    Risk of loss because of unfavourable fluctuations of interest rates.
  • Risk of insolvency of the Depository / Custodian:
    Risk to loose customer’s assets, registered in the name of the client on a subsidiary account of the brokerage company, because of insolvency of the depository or custodian.
  • Tax risk:
    Risk of unfavourable changes in tax rates, terms and conditions of tax payments.
  • Legal risks:
    Risk of loss due to improper execution of an agreement to buy-sell securities, insufficient level of authority for transactions, appearance of extra expenses because of changes in legislation.
  • Securities risk:
    When dealing with financial instruments, a customer should independently monitor the state of his/her positions and, in case of insufficient margin collateral, deposit necessary funds. If a customer did not or does not fulfill the requirements of the Company, Renesource Capital has the right to close all or part of the customer’s positions.

The list of the aforementioned risks is not exhaustive. The above is intended to help a customer to understand risks related to execution of trading transactions and to determine whether such risks are acceptable specifically for him/herself.

Securities risk

When dealing with financial instruments, a customer should independently monitor the state of his/her positions and, in case of insufficient margin collateral, deposit necessary funds. If a customer did not or does not fulfill the requirements of the Company, Renesource Capital has the right to close all or part of the customer’s positions.

When performing transactions using electronic trading platforms, it’s necessary to take into account a variety of specific risks: risk of computer hardware malfunctioning, risk of failure of communication channels, risk of system penetration by unauthorized persons and other risks.

When performing transactions in financial instruments that imply usage of leverage, a customer should understand that such transactions are characterized by increased risk. Using leverage may lead to losses that exceed the customer’s own funds, in case of unfavourable fluctuation of prices.

One should also take into account that trading transactions outside of a regulated market involve a higher level of risk than transactions on a regulated market. There is a chance that trading of financial instruments outside of a regulated market may be stopped and evaluation of open positions may become complicated or impossible.

The list of the aforementioned risks is not exhaustive. The above is intended to help a customer to understand risks related to execution of trading transactions and to determine whether such risks are acceptable specifically for him/herself.

Description of risks related to financial instruments;

To manage some of the risks associated with investment strategies, Renesource Capital offers to its customers the following types of orders:

  • Market order;
  • Limit order;
  • Stop order;
  • Trailing Stop Order;
  • Stop Limit;
  • If done (IFD);
  • One Cancels Other (OCO);
  • Good till (GT);
  • Good till Cancel (GTC);
  • Immediate or cancel (IOC).
Evaluation of risk groups

In accordance with the requirements of article 1262 of the Financial Instrument Market Law of the Republic of Latvia in regard to suitability of investment services and ancillary investment services to Customer’s interests, Renesource Capital determines suitability of a specific investment service to Customer’s interests using the financial instruments questionnaire. The questionnaire has been developed by the Company and requires information from the Customer regarding the Customer’s education, profession, experience in respect to transactions in financial instruments (their nature, volume, frequency and time over which these transactions have been made), investment goals, the sources and volume of Customer’s regular income, assets and liabilities. The company has developed the scoring system to process the evaluation of Customer’s knowledge and experience in the area of investment that allows the Company to determine the proper risk group of the Customer. In the light of the foregoing, the Company categorizes the provided investment services, ancillary investment services and financial instruments (FI) according to risk groups. Verification of suitability evaluation of the Company’s services to Customer’s interests is carried out only for the Customers who received Retail Customer status from the Company.

Evaluation of investment suitability services to Customer’s knowledge and experience is carried out by the Company in accordance with section A.I.7. of the Contract on rendering services on the Financial and Capital markets.

Where a Customer refuses to provide the information requested in the questionnaire or provides incomplete or inaccurate information or doesn’t notify the Company about changes in the information provided in the customer’s FI questionnaire, the Company is not able to assess the Customer’s knowledge and experience and to inform the Customer about suitable investment services, ancillary investment services and risk group of the Customer, which may lead to financial losses of the Customer.

The Company notifies a Customer about the assigned risk group when opening an FI account. It is a Customer’s responsibility to become acquainted with the information provided on the Company’s website (see below) about risk groups and investment services and financial instruments that are suitable (appropriate) to them.

The Company does not recommend that a Customer performs transactions in financial instruments that are not suitable for him/her or receives investment services or ancillary investment services where financial instruments or services are considered to be unsuitable for the Customer because they belong to a higher risk group than the one that was assigned by the Company to the Customer and was specified in the confirmation of opening a FI account for the Customer.

Notwithstanding the foregoing, in case where a Customer wishes to receive investment service(s) or ancillary investment service(s) that are not suitable for his risk profile or to perform transactions in financial instruments that are not suitable for his/her risk group, the Customer has to sign an  «Acknowledgment of risk acceptance», form where he/she acknowledges that he/she deliberately assumes the risks that he/she cannot evaluate, control and limit due to lack of necessary knowledge and experience. In that case the Customer individually accepts responsibility for consequences of his/her investment decisions, including the risk of significant losses which may exceed the principal amount of investments or the amount of the collateral.
Aggressive+ (Very high level of risk)

These are the transactions that contain a very high level of risk. Level of risk increases with the leverage ratio. In the transactions with higher leverage ratio, a customer is able to open positions that exceed several times the collateral size. As the result of transactions from this group, significant profits are possible with relatively low level of investments, as well as significant losses which may exceed the principal amount of investments or the amount of the collateral.

These financial instruments are categorized as complicated financial instruments that are difficult to understand.

Available instruments

  • NDF – Non deliverable forward is an outright forward contract (transaction with settlement at a future date) without intentions of real delivery of assets (settlement amount is calculated based on the difference between the contracted NDF rate and the spot rate at the date of settlement);
  • Exchange-traded margin transactions – FOREX (transactions on currency market) and BULLION (transactions in precious metals) on SPOT and FORWARD basis;
  • Exchange-traded margin transactions – transactions in exchange-traded derivative financial instruments (futures and futures options);
  • Off-exchange transactions – transactions in over-the-counter (OTC) derivative financial instruments (derivatives) – OTC SWAPS;
  • REPO transactions – sale of securities with an agreement to buy them back at a later date. REVERSE REPO transactions – purchase of securities with an agreement to sell them back at a later date;
  • Transactions with the usage of a broker’s credit (margin credit) – short selling – opening of short positions;
  • Options – options to buy (CALL) or to sell (PUT);
  • Contract for difference (CFDs) – on shares, indexes, commodities and other underlying assets;
  • Structured financial products without the principal guarantee – structured bonds;
  • All other investment funds – hedge funds etc.
Aggressive (High level of risk)

These are the transactions in financial instruments with high level of risk. As the result of transactions with this level of risk, significant profits are possible as well as significant losses. The instruments of this group are categorized as financial instruments of average complexity.

Available instruments

  • Currency contracts (SWAP and Forward) with physical delivery of underlying assets;
  • Other equities;
  • Closed-ended investment funds;
  • Other non-UCITS investments funds.
Balanced (Middle level of risk)

These are the transactions in financial instruments with middle level of risk. As the result of transactions with this level of risk, average profits are possible as well as average losses. These financial instruments group are categorized as simple financial instruments and it’s quite simple to understand their essence.

Available instruments

  • Contracts with floating interest rates – Interest rate swaps (IRS);
  • Fixed-income securities with speculative-grade ratings;
  • Open-ended equity UCITS funds;
  • Other open-ended UCITS funds;
  • Equities included into DJ-30, Bloomberg 500 and OMX Baltic Benchmark GI indexes;
  • Structured financial products with the principal guarantee.
Conservative (low level of risk)

These are the transactions in financial instruments with low level of risk. As the result of transactions with this level of risk, small profits are possible as well as relatively small losses. These financial instruments are categorized as simple financial instruments and it’s quite simple to invest into them and to understand their essence.

Available instruments

  • Money market instruments;
  • Open-ended money market UCITS funds;
  • Fixed-income securities (bonds) with investment-grade ratings;
  • Open-ended bonds UCITS funds;
  • Open-ended balanced UCITS funds.

Risk Disclosure Statement. Margin transactions (Forex, contracts for difference CFD, futures and futures options, stock options, REPO transactions, transactions in over-the-counter derivatives and transactions using broker credit, including selling short) involve higher risk. The level of risk increases with the leverage ratio. As the result of margin transactions, relatively high profits are possible with low level of initial investments, as well as significant losses which may exceed the principal amount of investments or the amount of the collateral. Please ascertain whether margin transactions in their essence and content suit the risk profile that was assigned to you by AS IBS Renesource Capital and whether the content of margin transactions corresponds to your investment goals.

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