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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Sales Practices and Investors Protection Services

Which statement about risk disclosure to a retail client trading equity derivatives is correct?

The client should be told that losses can exceed the initial margin deposited. Margin is only a deposit against potential losses, not a limit on them, particularly for futures and short options. Intermediaries must disclose risks and never promise assured returns.

  1. AThe client should be told that losses can exceed the initial margin depositedCorrect
  2. BRisk disclosure is needed only for option sellers
  3. CMargin paid caps the maximum loss on futures
  4. DGuaranteed returns may be indicated if hedged

Explanation

In futures and short options, losses can exceed the margin, so clients must be warned. Margin does not cap loss, and promising guaranteed returns is prohibited.

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