Notes on bitFlyer Crypto CFD and Risk

When performing trades on bitFlyer Crypto CFD, please thoroughly read both this document and the document outlining Risks of Using Virtual Currency.

"bitFlyer Crypto CFD" trade is trades of Over-the-counter derivatives of crypto assets that reference the prices of crypto assets handled by bitFlyer, Inc. (hereafter, the "Company"), in which the Company acts as the counterparty for the Over-the-counter derivatives of crypto assets, and the transaction is concluded between the customer and the Company as a negotiated transaction with the Company as a counterparty to the customer.

Although it is possible to earn large profits through bitFlyer Crypto CFD transactions, it is also possible to lose amounts in excess of your deposited margin. Please ensure that you have familiarized yourself with the mechanisms and risks of trading and only engage in trading at your own risk, upon determining that it is appropriate considering your own resources, trading experience, and trading goals.

1. Fees

Please refer to the Fees and Taxes page for more information on bitFlyer Crypto CFD transaction fees.

2. Margin

In order to make trades on bitFlyer, you must deposit a margin as noted in the bitFlyer Crypto CFD Trading Rules page. It should be noted that the value of trades may exceed the margin you deposited, so your losses may exceed your margin.

3. Risks of bitFlyer Crypto CFD Trading

(1) Trade Price Fluctuation Risks

Over-the-counter derivatives of crypto assets are conducted by referencing the price of the crypto asset as an index, and losses may be incurred due to fluctuations in the trading prices quoted by the Company for bitFlyer Crypto CFD. Losses may be incurred due to fluctuations in the price of the underlying crypto asset.

The Company will quote the total of the quantity of orders for crypto-asset-related Over-the counter derivatives received from other customers and the quantity of crypto-asset-related Overthe-counter derivatives required by the department conducting proprietary trading within the Company as the quantity at which the Company can accept the order for crypto-asset-related Over-the-counter derivatives from the customer at each Trade Price.

Further, when the Company receives an order for cryptoasset-related Over-the-counter derivatives from a customer, the Company will execute a crypto-asset-related Over-the-counter derivatives transaction between the customer and the Company when the conditions regarding the trade price and the quantity that the customer and the Company offer each other in the opposite direction match. Therefore, the Trade Price will rise or fall under the influence of fluctuations in the supply and demand balance of Over-the-counter derivatives of crypto asset transactions at the Company itself.

As a result, if the Trade Price at which the open interest held by the customer can be traded against fluctuates to the disadvantage of the customer (a fall in the Trade Price if the customer holds an open buy position, or a rise in the Trade Price if the customer holds an open sell position), the customer will suffer a loss.

(2) Risk of fluctuations in the spot price of the index crypto asset

Over-the-counter derivatives of crypto asset transactions are conducted referring to the spot price of crypto asset as an index, and are used by entities (including the Company's proprietary trading division) for the purpose of hedging the price fluctuation risk associated with holding the reference crypto asset, as well as by entities for arbitrage transactions that expect the price of the reference crypto asset and the Trade Price to be close in the future. Therefore, the Trade Prices the Company quotes are also affected by fluctuations in the price of the reference crypto asset, and are determined by reference to such indices. For this reason, the price of the reference crypto asset may be indirectly affected by spot price fluctuations of the underlying crypto asset, which is the crypto asset to be traded, and the index Trade Price may change to the disadvantage of the customer (a fall in the Trade Price if the customer holds an open buy position, or a rise in the Trade Price if the customer holds an open sell position), which may result in losses. Furthermore, because the transaction amount is large compared to the amount of margin deposited by the customer for the transaction, fluctuations in the price of such index transactions may cause the amount of losses to exceed the amount of margin deposited, resulting in losses in excess of the principal amount for the customer.

(3) Common Risks of Fluctuations in Trade Prices and Crypto Asset Index Prices

The price of crypto assets may fluctuate rapidly due to changes in the balance of supply and demand for Over-the-counter derivatives of crypto asset transactions at the Company, changes in the balance of supply and demand for spot trading of crypto assets that are the reference assets for Over-the-counter derivatives of crypto asset transactions, changes in prices, fiat currency, trends in other markets, natural disasters, war, political changes, changes in laws and regulations, changes in the situation pertaining to crypto assets, and other unforeseen or significant events. Depending on the price fluctuations, there is a possibility that an order may not be executed, an intended transaction may not be executed, or an unintended transaction may be executed. Be aware that the spot price of the crypto asset being indexed may become zero. In addition, the Company's Over-the-counter crypto asset derivative transactions permit the use of designated spot crypto assets as margin. In Over-the-counter crypto asset derivative transactions that reference the same type of crypto asset as the spot crypto asset used for margin, holding a long position exposes the holder to the risk of experiencing greater losses than anticipated when market downturns lead to declines in the value of the spot crypto asset provided as margin, coupled with losses from the revised valuation of the Over-the-counter crypto asset derivative transactions. Moreover, the margin required to maintain bitFlyer Crypto CFD positions is continuously recalculated based on the latest spot crypto asset trading price established on Lightning Spot. Consequently, the amount of margin needed to sustain the customer's held positions might increase in response to changes in the spot crypto asset tradin prices. In such scenarios, there is an elevated risk of encountering a margin shortfall due to an increase in valuation losses on the Over-the-counter crypto asset derivative transactions.

(4) Risks Inherent to Crypto Asset Networks

Crypto assets are not fiat currency, but electronic data exchanged Over-the Internet, and the value is not guaranteed by any specific party. Crypto assets do not necessarily have underlying assets. These characteristics affect Over-thecounter derivatives of crypto asset transactions that have crypto assets prices as reference, and the instability in the value of such underlying assets may be reflected in the instability in the value of Over-the-counter derivatives of crypto asset transactions, which may cause customers to incur losses.
The blockchain may diverge due to a hard fork, soft fork, etc., which may cause a significant drop in the value of the underlying crypto assets for Over-the-counter derivatives of crypto asset transactions or may retroactively invalidate the transactions. The Company may have a certain period of time before and after the divergence when the Company does not accept transactions such as settlements using the underlying crypto assets, deposits and transfers of the underlying crypto assets, etc. In addition, if the Company determines that the divergence is not permanent, or for other reasons, the Company may not handle all or part of the relevant crypto assets. In the event of a blockchain divergence, other changes in the specifications of crypto assets, or other events such as airdrops, the Company will decide at the Company's own discretion whether or not to respond to such events and the details of such response. Therefore, the Company may suspend or invalidate Over-the-counter derivatives of crypto asset transactions whose reference crypto asset is subject to the event, as well as transactions of the subject crypto asset itself. In addition, there is a possibility that the Company will collect the rights adjustment amount from holders of open interest when the Company will grant the rights adjustment amount to holders of open interest.
If a malicious party has a hashrate of 51% or higher in the blockchain network of a crypto asset, there is a risk that the corresponding malicious party may be able to (1) approve unauthorized transactions, (2) deny legitimate transactions, or (3) monopolize the mining. If such a situation occurs, the price of Over-the-counter derivatives of crypto asset transactions with crypto asset prices as reference may fall sharply or fluctuate drastically, and customers may suffer losses.

(5) Sell Out and other risks

Regardless of the customer's intention, bitFlyer may forcibly settle the customer's open positions through an offsetting sale (sell out order) in accordance with the Margin Call Rule and Sell Out Rule.

bitFlyer conducts a daily assessment at 6:00 pm (JST) to determine whether the customer's open positions have fallen into a margin shortfall. During this assessment, the amount of margin required is calculated based on the most recent spot trading prices on Lightning Spot at 6:00 pm (JST) each business day, and is compared against the customer's deposited margin (this includes valuation gains or losses on the positions held). If the assessment cannot be carried out at 6:00 pm (JST) due to system failures or other reasons, it will be performed as soon as the calculation of the required margin amount is possible.

If a customer who falls short of margins at 6:00 p.m. on a certain day does not take necessary measures to resolve the margin shortage until 5:00 p.m. on the following day, the sell out rule will be applied to all open positions held by the customer. In addition to the above, when a customer's margin maintenance ratio declines and reaches 50%, the sell out rule is immediately applied to all open positions for those customers who hold a single open position, and to the open positions necessary to recover the margin maintenance ratio among multiple open positions in the order determined by the Company for customers who hold multiple open positions.

Further, when price distribution is suspended and then resumed, there is a possibility of forced sell out transactions due to the difference between the price before the suspension and the price after the resumption.

Even in the event of a sell out, it is possible that the amount lost due to a dramatic and rapid change in the market will cause losses to exceed the margin deposit. If losses exceed the amount in the margin deposit, the excess amount must be paid (In some cases, the Company may make a settlement by acquiring crypto assets that the customer has deposited with the Company as a margin deposit in lieu of fiat currency).

Furthermore, since the Company only present customers with orders received from other customers and the volume backed by the needs of the Company's internal proprietary trading department, there are cases where sell out orders placed from a customer's account are not executed even if placed, or where sell out trades are executed at a price significantly less favorable to the customer than the Trade Price at the time the sell out rule is triggered.

Net valuation gains and losses, margin requirements, etc. are combined in bitFlyer Crypto CFD (open positions on each order book will not be offset). Be aware that when open positions are opened on multiple boards, there is a risk of triggering a sell out due to sudden market fluctuations in either order book.

When trading Over-the-counter derivatives of crypto asset transactions, please consider your own financial resources and investment objectives carefully and trade with a sufficient margin deposit.

(6) Liquidity Risk

Note that market changes or trading volume may cause a customer to be unable to close open positions or open new positions, and such changes may also result in transactions at undesirable rates. Where an order is delayed, either on the buy or sell side, it may take some time for the order to complete, or it may fail to fulfill.

(7) Credit Risk

The Company's Over-the-counter derivatives of crypto asset transactions are conducted between customers and the Company. Thus, if the Company's business or property situations, deteriorates and the company becomes unable to fulfill its obligations, it may also become unable to fulfill its obligations to the customer, making it likely that the customer may suffer losses (especially when customers' open interest is in the form of unrealized profit, the customer may not be able to recover such unrealized profits).

The Company manages margin deposits from customers separately from the Company's own funds by means of a money trust.

(8) Leverage Point Risks

Regardless of price movements of the crypto assets subject to trading, holding either short or long positions on bitFlyer Crypto CFD incurs leverage point payments. These payments are added as valuation losses to the customer's held positions, increasing the likelihood of an accumulation of valuation losses the longer the positions are held. Fluctuation in the price of the crypto asset referenced in the Over-the-counter crypto asset derivative transactions, changes in the loan rates, etc., for loan transactions for the crypto asset, and fluctuation in interest rates, may prompt bitFlyer to adjust Leverage Point levels.

(9) Funding Rate Risks

On bitFlyer Crypto CFD, funding rate transfers take place between bitFlyer and the customer. The "Funding Rate" is defined as the mechanism by which money is transferred based on the amount calculated from the price differential between the trading price on bitFlyer Crypto CFD and the spot trading price of the crypto asset that is referenced on bitFlyer Crypto CFD. This transfer is conducted in accordance with the customer's held position size, at the designated times every eight hours. The term can also refer to the monetary amount transferred at such times.

If the trading price on bitFlyer Crypto CFD exceeds the spot trading price of the referenced crypto asset, funds are collected from the long position holders and granted to the short position holders. In the reverse scenario, funds are collected from short position holders and granted to long position holders.

Money transfer resulting from funding rates are added to the valuation gains and losses of a customer's held positions. Consequently, if a customer maintains positions that are subject to money collection, the likelihood of an increase in valuation losses for these positions grows with the duration of ownership.

Additionally, if bitFlyer 's proprietary trading department holds positions, bitFlyer will also be subject to either fund collection or grants pursuant to the funding rate. As a result, in scenarios where the proprietary trading department's positions qualify for fund receipts, money collected from customers may, in effect, be granted to bitFlyer 's proprietary trading department.

In addition, bitFlyer might maintain short positions on bitFlyer Crypto CFD to hedge the risk of price fluctuations in bitFlyer 's crypto asset spot inventory, which is held for the operation of bitFlyer 's crypto asset exchange business. Should the trading price on bitFlyer Crypto CFD deviate from the spot price of the referenced asset, bitFlyer may also maintain positions on bitFlyer Crypto CFD anticipating a narrowing of this gap, with the intent of engaging in arbitrage trading.

(10) System Risks

Over-the-counter derivatives of crypto asset trades performed by customers make use of an electronic trading system. There may be cases where a trade does not complete as intended or completes in an unintended manner due to factors such as customer error when entering data and/or other causes. Note that trades may not complete as intended based on the type of order or market conditions.
As a result of causes that include, but are not limited to, damage to the telecommunications networks, systems, and equipment used by the Company and customers, damage to a connection, natural disasters such as earthquakes, lightning, and fires, or cyber attacks, etc., the electronic trading system may be rendered unusable temporarily, and transmission of customer orders may be delayed, deleted, or fail to process, resulting in invalidation or completion in an unintended manner. Note that in the event of electronic trading system failure, all or part of the Company's services, including the execution of Over-the-counter derivatives trades by the Company, may be suspended or restricted.
There may be a possibility that the Company's system calculates an abnormal Over-the-counter derivatives of crypto asset offer price. The Company reserves the right to render the listed price invalid and cancel trades which have been completed in the event that the Company can reasonably determine that the listed price is, due to system abnormality or other causes, significantly different from the prevailing market price, incorrect, abnormal, or based on unfair valuations.

(11) Consideration Points on Market Order

The Company will not execute a limit order from a customer with a price more disadvantageous than the designated price by the customer while placing the limit order. However, when placing a market order, or a special order that contains a market order (including stop order), there may be a difference between the actual execution price and the price recognized by the customer on the trade interface while placing the market order. The corresponding price difference occurs due to the fluctuation of executable price quoted by the Company with reflecting change of balance between supply and demand for OTC Crypto Asset Derivatives Contract, between the timing when the customer recognizes the executable price quoted by the Company and the timing when IT infrastructure of the Company completes taking and execution of the order from the customer placed by the customer himself/herself and sent from his/her IT facility to IT infrastructure of the Company. The corresponding price difference may result in either an advantageous price or a disadvantageous price for the customer.

Company Outline

Company Name: bitFlyer Co., Ltd.
Address of Headquarters: Midtown Tower, 9-7-1 Akasaka, Minato-ku, Tokyo 107-6233
Contact: https://bitflyer.com/en-jp/contactpage
URL: https://bitflyer.com/en-jp/