Additional Risk Disclosures for Stock Perpetuals

RISK DISCLOSURES FOR STOCK PERPETUALS

IMPORTANT

Trading in Stock Perpetuals and using the trading and related services involve risks, some of which are set out below. These risks, and additional risks arising either now or in the future, could result in the loss, failure or destruction of your assets, inability to receive any benefits available to you, other losses and termination of our trading and related services.

You must consider carefully whether the risks set out below, as well as all other applicable risks, are acceptable to you prior to any transaction in Stock Perpetuals.

You must seek professional advice regarding your particular situation before trading in Stock Perpetuals or using the trading and related services.

THE RISK OF LOSS IN TRANSACTIONS INVOLVING STOCK PERPETUALS CAN BE SUBSTANTIAL. YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRANSACTIONS ARE SUITABLE FOR YOU IN LIGHT OF YOUR INVESTMENT OBJECTIVES, FINANCIAL CIRCUMSTANCES, RISK TOLERANCE AND INVESTMENT EXPERIENCE. YOU SHOULD BE CAPABLE OF BEARING A TOTAL LOSS OF THE COLLATERAL AND OTHER ASSETS ALLOCATED BY YOU TO SUPPORT YOUR STOCK PERPETUALS POSITIONS. STOCK PERPETUALS ARE COMPLEX, HIGHLY LEVERAGED DERIVATIVE PRODUCTS AND ARE NOT SUITABLE FOR ALL INVESTORS. IN CONSIDERING WHETHER TO TRADE OR INVEST, YOU SHOULD INFORM YOURSELF AND BE AWARE OF THE RISKS GENERALLY, AND IN PARTICULAR SHOULD NOTE THE FOLLOWING SPECIFIC RISK FACTORS WHICH MAY APPLY TO ANY GIVEN STOCK PERPETUALS TRANSACTION.

Stock Perpetuals are intended only for those Clients whom HMF permits to access the product in accordance with Applicable Laws and HMF’s product eligibility, onboarding, knowledge assessment and account‑opening requirements from time to time. Unless otherwise defined in this document, capitalised terms shall have the same meaning as in the “Investor Business Terms”, the “Additional Terms Applicable to Perpetual Futures Products” and the “Additional Terms Applicable to the Stock Perpetuals Product”.

1. Stock Perpetuals are derivative products and may not be suitable for all Clients. Stock Perpetuals are complex, leveraged derivative contracts that allow you to speculate on the price movements of one or more Underlying Equity References (for example, individual shares, equity indices or exchange-traded products) without owning the underlying securities. Unlike traditional equity futures, Stock Perpetuals have no fixed expiry date, enabling Positions to be held indefinitely, subject to margin and risk controls. Key features include:
   • Price tracking and convergence mechanism: Stock Perpetuals aim to track the Reference Price of the Underlying Equity Reference through a Funding mechanism, where periodic Funding payments are exchanged between long and short position holders to align the Stock Perpetual price with the equity reference.
   • Leverage and margining: Positions are leveraged, meaning you can control a larger notional exposure with a smaller initial margin. Gains and losses are amplified, and you may lose all of the Collateral allocated to a Position in a short period of time.
   • Trading and settlement: Trades are executed on our platform via order matching. Positions are managed through margin requirements, real‑time mark‑to‑market valuations, and automated liquidation processes to prevent credit exposure. Settlement occurs through Funding payments and upon position closure.
   • Risk management: We employ risk‑management mechanisms, including an Insurance Fund and loss‑allocation procedures (for example, Auto‑Deleveraging), to support orderly markets and manage default risk.

By trading Stock Perpetuals, you acknowledge that these characteristics can lead to rapid and substantial financial outcomes, positive or negative. You should monitor your Positions closely, as equity markets and Stock Perpetual prices can change unpredictably.

1. Stock Perpetuals are complex, and trading in them is high risk; prices may diverge from underlying equity markets. The market price of a Stock Perpetual may not reflect the price in spot markets of the applicable Underlying Equity References and may fluctuate significantly in response to the underlying equity price, supply and demand, liquidity conditions, corporate actions, index methodology changes, regulatory events and other market factors. This discrepancy can lead to inaccurate profit and loss expectations, margin calls or liquidations based on prices that do not match your expectations of the underlying equity market. Hypothetical Scenario: The Reference Price index for a technology stock calculates a level equivalent to USD 100 per share, while the main listing exchange is temporarily illiquid and last traded at USD 96. Your long Stock Perpetual Position shows an unrealised gain based on the index, but when liquidity returns and the index recalibrates to exchange prices, the Mark Price falls, potentially triggering margin calls or liquidation at a level you did not anticipate.
2. Valuation of equity‑linked products may be opaque and speculative; Stock Perpetuals can deviate significantly from spot during volatility. Equity‑linked derivatives and indices can involve complex, sometimes proprietary, valuation methodologies. During periods of high volatility or market stress, Stock Perpetual prices may deviate widely from the spot prices of the Underlying Equity References due to Funding imbalances, market impact, thin liquidity or rapid sentiment shifts. This can amplify losses if the divergence persists against your Position, even if the underlying equity eventually converges back to your expected level. Hypothetical Scenario: During a sharp intraday sell‑off, the Stock Perpetual on a popular index trades at an 8% discount to the official index level due to forced liquidations and thin order books. Your 10x leveraged long Stock Perpetual Position suffers a large mark‑to‑market loss and is partially liquidated before prices normalise, even though the spot index closes only 3% lower on the day.
3. Funding payments may be volatile and, in extreme market conditions, may become large. Funding payments between long and short Positions in Stock Perpetuals may fluctuate significantly over time. Even if the market price of the relevant Stock Perpetual moves in your favour, you may still incur losses as a result of repeated Funding payments, trading fees, slippage, liquidation, or a combination of these factors. The longer you maintain a Position, the greater the risk that cumulative Funding and fees will adversely affect your returns.
4. Absence of expiry‑driven convergence; long‑term basis risk and non‑convergence.
   Without a fixed expiry date, Stock Perpetuals do not benefit from expiry‑forced convergence with the underlying equities or indices. Prices may not align naturally and may rely solely on Funding Rates and market forces, which can be ineffective in prolonged imbalances. Long‑term holders face the risk of persistent divergence between Stock Perpetual prices and the Underlying Equity References, increasing holding costs and the risk of non‑convergence. Hypothetical Scenario: In a sustained rally, the Stock Perpetual on a growth‑stock index trades at a 5% premium to the index level. Your short Position incurs ongoing Funding losses and mark‑to‑market losses as the premium persists for weeks. Although the index itself later trades sideways, the cumulative Funding and premium erosion force you to close the Position at a loss.
5. The risk of loss is substantial; you may lose all assets allocated to Stock Perpetual Positions. Under exceptional market circumstances, the prices of Underlying Equity References, and hence the prices of Stock Perpetuals, may move sharply up or down in a short period of time. You should be prepared to lose the full value of the Collateral and other assets allocated to support your Stock Perpetual Positions within a single day. Due to leverage and the risks outlined herein, you could lose your entire margin in a Stock Perpetual Position, with no recovery possible. Hypothetical Scenario: You enter a 10x leveraged long Stock Perpetual Position referencing a single stock with USD 10,000 margin (notional USD 100,000). The stock price falls 10% following an unexpected earnings warning. The mark-to-market loss, amplified by leverage, wipes out your entire margin and triggers full liquidation of the Position with no residual value.
6. Leverage magnifies both gains and losses; margin shortfalls can trigger forced liquidation. A relatively small adverse movement in the price of the Underlying Equity References may have a disproportionately large negative effect on your Position and may rapidly cause your Equity to fall below the applicable Maintenance Margin requirement or Risk Ratio threshold. This may result in forced liquidation or other close‑out action under the Liquidation Waterfall, potentially without prior notice. You may not have sufficient time to add Collateral or reduce Positions before liquidation occurs.
7. Equity and equity‑linked markets can gap; Stock Perpetuals may liquidate at worse‑than‑expected prices. Equity markets and indices are prone to sudden price jumps or “gaps” due to news announcements, earnings releases, macroeconomic data, regulatory actions or other events, including outside regular trading hours of the Reference Markets. Gaps can cause Stock Perpetual Positions to liquidate at prices materially worse than your expected stop‑loss level or indicative levels shown on the platform, leading to larger‑than‑anticipated losses. Hypothetical Scenario: A major regulatory announcement affecting a large financial institution is released after the Reference Market close. The next day, the stock opens 20% lower. Your long Stock Perpetual Position is liquidated at a Mark Price reflecting the gap, significantly below any price at which you could previously have placed an ordinary stop order.
8. Collateral, leverage and cascading liquidation risk. In order to trade Stock Perpetuals, you must post eligible Collateral accepted by HMF for that product from time to time. Depending on market movements, fees, Funding payments and other debits, your Positions may be liquidated and you may sustain a total loss of the Collateral and other assets allocated to support those Positions. Because Stock Perpetuals are leveraged, a relatively small price movement in the Underlying Equity References may result in a proportionally large adverse impact on your Position and may contribute to cascading liquidations in stressed markets. Hypothetical Scenario: A sudden sector-wide sell-off in technology stocks triggers initial liquidations in Stock Perpetuals referencing a tech index. These forced liquidations push prices further down, which in turn cause more Positions (including yours, even if initially well margined) to breach Risk Ratio thresholds, resulting in additional liquidations and accelerating losses across the market.
9. Concentration risk and difficulty exiting Positions, especially in less liquid Stock Perpetuals. Clients may be exposed to high concentration risk in a single issuer, sector, region or Stock Perpetual contract. Without a fixed expiry, Stock Perpetuals do not automatically settle, and low liquidity can make it hard to exit Positions at desired prices, especially during off‑peak hours, in less frequently traded names or where market makers withdraw. You may face slippage, wider spreads or an inability to close Positions, leading to prolonged exposure to adverse moves and potential forced liquidations. Hypothetical Scenario: You attempt to close a large long Position in a Stock Perpetual referencing a mid‑cap stock during a quiet trading session. Due to thin order books and limited market‑maker quotes, your market order executes at prices 4% below the last traded price, resulting in additional losses from slippage that would likely not have occurred in a more liquid instrument.
10. Reliance on Liquidity Backstop Providers, the Insurance Fund and Auto‑Deleveraging. In severe scenarios, Liquidity Backstop Providers may be unavailable or unwilling to assume Positions at or near the Bankruptcy Price of a defaulting Client. In such cases, HMF may rely on the Insurance Fund or Auto‑Deleveraging mechanisms under the Liquidation Waterfall. Delays, limited capacity or unfavourable executions during these processes can increase losses to defaulting and non‑defaulting Clients alike. Hypothetical Scenario: A large concentrated short Position in a Stock Perpetual on a single stock defaults after a sudden price spike. Liquidity Backstop Providers do not absorb the entire Position at the Bankruptcy Price. The Insurance Fund partially covers the shortfall but is depleted, and Auto‑Deleveraging is triggered, closing part of your profitable long Position at a suboptimal price to mutualise losses, thereby significantly reducing your realised gain.
11. You may be unable to open, close, reduce or hedge Positions at your preferred price or at all. Market illiquidity, sudden volatility, price gaps, trading halts, systems throttling, risk controls, rejected Orders, unavailable counterparties, insufficient order‑book depth, API failures and disruptions affecting market makers or Liquidity Backstop Providers may prevent or delay execution of your Orders in Stock Perpetuals. In such circumstances, you may be unable to open, close, reduce or hedge Positions at your preferred price or at all, which may result in increased losses or missed opportunities.
12. Margin calls, Funding Rate volatility and unexpected liquidation risk. If the market moves against a Position, or if Funding, fees or other debits reduce your Equity, you may need to promptly allocate additional eligible Collateral or reduce or close Positions in order to avoid liquidation. Funding Rates can fluctuate significantly based on market sentiment, supply-and-demand imbalances between long and short Positions, interest-rate differentials and expected dividends. This may increase your holding costs unpredictably, eroding profits or exacerbating losses over time. Adverse Funding Rate changes can push your Equity closer to maintenance thresholds and may trigger liquidation even if the underlying equity price remains relatively stable. Hypothetical Scenario: You hold a long Stock Perpetual Position on a high-dividend stock. The Funding Rate increases sharply as short demand grows and expected dividends rise. Over several days, you pay substantial Funding, which reduces your Equity and pushes your Risk Ratio close to the liquidation threshold, even though the stock price itself has moved only slightly.
13. Product parameters, methodologies and disclosures may change. The Mark Price, Reference Price methodology, Funding Rate calculation, Maintenance Margin requirement, Bankruptcy Price, liquidation thresholds, Insurance Fund parameters and other key product parameters relating to Stock Perpetuals may change over time in accordance with the applicable terms, methodologies and Website disclosures. Such changes may affect your ability to maintain Positions, the timing of liquidation, the amount of any Funding payment, and your realised or unrealised profit and loss. You are responsible for reviewing the latest disclosures and parameters before and during trading.
14. Ongoing Funding obligations and long-term payment risk. Stock Perpetuals do not expire, and Clients may be required to make Funding payments or other payments for long periods of time. If you maintain Positions for an extended period, cumulative Funding and other costs may be substantial and may turn an otherwise profitable trading strategy into a net loss. You should not assume that Funding Rates will remain low, stable or favourable over the life of your Position.
15. Total loss of Collateral and other assets allocated to Stock Perpetuals; cross-product exposure. Clients may sustain a total loss of any Collateral and other assets allocated to establish or maintain a Position in Stock Perpetuals. If sufficient eligible Collateral is not available within the time required by HMF’s systems and rules, the Client’s Collateral may be used, applied, transferred, converted, sold or otherwise dealt with in accordance with the applicable terms, and forced position reduction, liquidation, close-out, novation, settlement and other loss-allocation actions may be taken without the Client’s consent. If the Client has activated any optional functionality allowing assets outside the portion of the Client’s Account allocated to Perpetual Futures Products to be used in connection with Stock Perpetuals Positions, the Client may incur losses beyond the Collateral allocated specifically to Stock Perpetuals, and assets held for spot trading or other products may be used to satisfy liabilities arising from Stock Perpetuals.
16. Operational, data and methodology risk. The pricing, risk management and settlement of Stock Perpetuals depend on market‑data feeds, corporate‑action information, index and benchmark methodologies, pricing models, risk‑control systems and other operational infrastructure. Errors, delays, omissions or failures in such systems, data sources or methodologies (including, without limitation, incorrect or delayed corporate‑action adjustments, index‑calculation errors, stale prices or technology outages) may affect the Reference Price, Mark Price, Funding, margin calls and liquidation thresholds for Stock Perpetuals and may result in unexpected losses, forced liquidations or an inability to trade. HMF may revise methodologies and parameters from time to time, and such changes may affect the economics and risks of maintaining Positions in Stock Perpetuals.
17. Regulatory, tax and product-classification risk. The regulatory, legal and tax treatment of equity-linked derivatives and Stock Perpetuals may differ across jurisdictions and may change over time. Changes to Applicable Laws, regulations, licensing conditions, product scope limitations, conduct of business rules or supervisory expectations may affect HMF’s ability to offer, maintain or adjust Stock Perpetuals and may impose additional restrictions, costs or reporting requirements on you or HMF. HMF may restrict access to certain Stock Perpetuals, adjust leverage or margin parameters, suspend or terminate products, or impose additional eligibility or onboarding requirements at short notice, and you may suffer losses as a result. You are solely responsible for obtaining your own legal, tax, financial and accounting advice regarding the implications of trading Stock Perpetuals.
18. Client responsibility and suitability. The risk of loss in Stock Perpetuals is borne solely by you. It is your responsibility to understand the nature, features and risks of Stock Perpetuals, to assess carefully whether they are suitable for you in light of your experience, objectives, financial condition and risk tolerance, and to seek professional advice where appropriate. You must continuously monitor your Positions, margin levels, Risk Ratios, Funding and the status of the relevant equity markets, and ensure that sufficient eligible Collateral is maintained at all times. If you are uncomfortable with the risks described in these disclosures, you should not trade Stock Perpetuals.