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Protection Investor Funds
The investor capital is never at risk as it protected under an MT760, a blocking instrument rendering the Investor Capital inaccessible for the duration of the trading program.
Depending on the Instrument and Issuing Bank, Investor’s Capital can remain in his/her/their own account, provided their bank is acceptable to the First Trader and is able to issue the required MT760.
In essence the Investor provides a Limited Power of Attorney to the Trader which allows the Trader to present the client funds as a deposit for each transaction, i.e. the Trader will show that the Investor has funds but the actual funds never leave the Investor’s account.
The funds are simply ‘mirrored’ and leveraged up for the benefit of the Trader during each transaction and blocked for the period of the Contract. THE MT760 WILL PROVIDE AN IRREVOCABLE UNDERTAKING FROM THE BANK TO THE EFFECT THERE WILL BE NO DEPLETION OF THE CLIENT FUNDS.
i. The Bank can provide the guarantees based on the principle of “non-depletion” because the face value of an MTN is always greater than its discounted cost.
ii. The ‘Commitment Holder’ offers the Fresh Paper to the First Trader at a price greater than the issue price, but no money changes hands at this stage.
iii. The First Trader then sells the Note at a higher price than his cost to his Exit Buyer, who pays cash on delivery.
iv. The First Trader extracts his profits from this cash payment and settles his account with the ‘Commitment Holder’ two days after receiving the cash.
v. The Commitment Holder then deducts his and the Receiving Bank’s profit and forwards the balance to the Issuing Bank.
As all trades are paid for in advance of transaction the Investor Capital is never at risk and the profits are instant and guaranteed.
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