OTC (Over-the-Counter) Derivatives

OTC Derivatives can include transactions that give right to interchange derivative instruments that depend on price or return of a security or price of a foreign currency or a precious metal or an interest rate and changes in them with derivatives of these instruments and with said underlying assets. Derivatives affect risks that people/institutions are exposed to and enable investors to avoid unwanted risks or even change the direction of risk exposed by using derivatives. Derivatives, as a financial instrument, have below mentioned properties;

• Derivatives are based on one or more assets, amount and maturity.
• Investing in derivatives requires much less cost than actual value of the product itself. Example: Option Premium

Derivatives are used with hedging or yield enhancing purposes. FX and Precious Metal DCD, FX and Precious Metal Vanilla Option, FX and Precious Metal Swap, and FX and Precious Metal Forward are the OTC (over-the-counter) derivative products that we offer to our customers. Alternative Currency is compatible with customers whose risk profile is “Very High Risk”. In order to trade in Derivative Products, the relevant Framework Agreement, the Basic Information Document of the product and the Risk Profile Questionnaire must be filled out.

You can log in to the HSBC Bank A.Ş. Individual Mobile Banking application or Internet Banking to learn your risk profile by filling out the Risk Profile Questionnaire and Suitability Test and to determine the products suitable for you through your branch.

DCD (Alternative Currency)

Alternative Currency: It is an investment product that is a combination of a currency option and a time deposit taken as collateral. With an Alternative Currency option, the customer sells the bank the right to exercise the option in return for enhanced yield by accepting the foreign exchange risks. Alternative Currency product might offer higher returns than regular time deposits if the foreign exchange markets move in line with the customer’s expectations. With Alternative Currency, it is possible to obtain high return by taking exchange rate risk; however the value of the customers' investment at maturity might be less than the amount initially invested (there might be loss of capital in original currency due to exchange rate movements).

Alternative Precious Metal (Gold and Silver): An investment product that is a combination of a gold and silver option and a time deposit taken as collateral. With a precious metaloption, the customer sells the bank the right to exercise the option in return for enhanced yield by accepting the gold/silver price risks. The customer takes high risk while investing in Alternative Precious Metal product, because of gold/silver price movements, the value of the customers' investment at maturity might be less than the amount initially invested. There might be loss of capital due to gold price movements. In Alternative Precious Metal (DCD) transactions, the metals in question can only be on the opposite leg to FX; while in Vanilla Option transactions, transactions can also be made with Precious Metals against FX.

Option

Options are contracts that give right to the option buyer to buy or sell a fixed amount of a specific asset (currency, equity, bond, commodity, precious metals etc.) at a predefined strike price on a specific future date without making a commitment. Customer can sell an option to Bank in return of an option premium or buy an option from Bank by paying an option premium depending on his/her will and need.

European FX Option: Foreign Currency Option gives right to the option buyer to buy or sell a fixed amount of one currency in exchange to another currency at a predefined strike price on a specific future date. Option buyer has the right to buy or sell a currency at the agreed level but this is not an obligation. In exchange for this right the option buyer pays option premium to option seller to obtain right. For the transactions where the customer is the option buyer and the bank is the option seller, the customer has the right to exercise the option at maturity date and time stated on the receipt. For the transactions where the customer is the option seller and the bank is the option buyer, the bank has the right to exercise the option at maturity date and time stated on the receipt.

FX Option enables option buyer hedging currency risks and gives opportunity to benefit from possible advantageous spot rates at maturity. FX Option enables the option seller to make profit as much as the option premium if foreign exchange markets move in line with the customer’s expectations. FX Option gives the possibility of receiving higher returns by taking foreign exchange risks based on customer's expectations of future foreign exchange rates. If the foreign exchange markets do not move in line with the customer’s expectations option buyer might lose the option premium. Also if the foreign exchange markets do not move in line with the customer’s expectations the option seller might also have loss and the value of the customers' investment at maturity might be less than the amount initially invested.

European Precious Metal (Gold and Silver) Option: Precious Metal Option gives right to the option buyer to buy or sell fixed amount gold in exchange to another currency at a predefined strike price on a specific future date specified in the contract. Option buyer has the right to buy or sell precious metal at the agreed level but this is not an obligation. In exchange for this right the option buyer pays option premium to option seller to obtain right. For the transactions where the customer is the option buyer and the bank is the option seller, the customer has the right to exercise the option at expiry date and time stated on the receipt. For the transactions where the customer is the option buyer and the bank is the option seller, the customer has the right to exercise the option at expiry date and time stated on the receipt. For the transactions where the customer is the option seller and the bank is the option buyer, the bank has the right to exercise the option at expiry date and time stated on the receipt.

Precious Metal Option enables option buyer hedging gold price risks and gives opportunity to benefit from possible advantageous spot rates at maturity. Precious Metal Option enables the option seller to make profit as much as the option premium if gold/silver prices move in line with the customer’s expectations. Precious Metal Option gives the possibility of receiving higher returns by taking gold/silver price risks based on customer's expectations of future gold/silver prices. If the foreign exchange markets do not move in line with the customer’s expectations option buyer might lose the option premium. Also if the gold prices do not move in line with the customer’s expectations the option seller might also have loss and the value of the customers' investment at maturity might be less than the amount initially invested.

Swap

FX and Precious Metal (Gold and Silver) Swap and FX Deposit Swap: A Swap is an transaction that allows the exchange of different foreign exchange or precious metal units on the transaction date and maturity dates, at the rates and parities determined today. The customer returns the foreign exchange or precious metal of the type and amount agreed on the transaction day to the foreign exchange or precious metal unit on the opposite leg for the period until maturity at the rate agreed on the transaction day. When the transaction matures, the customer returns to the initial foreign exchange or precious metal type at the rate agreed on the transaction day. If the customer wishes, they can also perform this product as a deposit swap in a way that will earn deposit income until maturity.

Forward

FX and Precious Metal (Gold and Silver) Forward: A Forward is an agreement to buy or sell different foreign currency or precious metal units at a future fate, based on exchange rates and parities agreed upon today. The customer commits to buy or sell the agreed amount and type of foreign currency or precious metal on the transaction date, at the rate fixed at the time of agreement, regardless of the spot market conditions at maturity. This transaction can be executed for hedging purposes or as an investment strategy.

As HSBC Bank A.Ş., we would like to announce that due to changes in our practices regarding the investment transactions of our individual customers, as of March 24, 2025, we will not be mediating the transactions of “non-risk”, “very low risk” and “low risk” customers in “very high risk” level Options, Forward and Swap products.