Investment Products

As of 05/02/2022

The DriveWealth Platform supports various types of investment products within a brokerage account; the range of available products may vary from time to time in DriveWealth’s sole discretion. Certain types of investment products and particular securities may not be available in all jurisdictions and may be subject to trading restrictions or limitations. The specific products or set list of securities made available to you within a category of product are determined by your Introducing Firm and may be subject to additional terms as decided by your Introducing Firm. 

Before making any investment you should carefully evaluate if a product is suitable for your individual needs, financial situation, and risk tolerance. DriveWealth does not guarantee that a particular product will meet your investment goals and we make no representations as to the suitability of a particular investment product or investment strategy. 

This section is intended to provide a general description of various types of investment products including a non-exhaustive, and non-personalized, summary of important risk considerations. Your Introducing Firm may charge you specific fees for trading activity in a particular product. DriveWealth may collect that fee on behalf of your Introducing Firm.

U.S. Equities

  • What are Equities?

    DriveWealth supports trading in certain NYSE and NASDAQ listed equities, as well as select over-the-counter (OTC) securities.

    A stock represents a fractional ownership interest in a company - also known as equity shares. You participate in returns, both appreciation and depreciation, based on the success or failure of that company. There are two primary ways to earn a return with respect to stocks: (1) Dividends - when a company chooses to distribute earnings to shareholders by paying a dividend; and (2) Capital Gains - changes to the market value of a security based on trading in the market. ‘

    In addition to participating in investment returns, ownership of a stock also will typically give you the ability to vote on important company issues and policies. 

    In the event of a particular company’s bankruptcy, a shareholder will have a claim on that company’s assets; provided, however, that stockholders receive only that portion of assets remaining after the company’s creditors are paid.

  • Important Risk Factors:

    Stock prices may vary, swing wildly, and can react unpredictably based on a number of factors including, but not limited to, broader market conditions, the company’s business risks and financial condition, sector-specific factors, sociopolitical factors, country risk, currency risk, and available liquidity.

    If a company becomes insolvent, its stocks are repaid only after all other debts of the company have been repaid. This can result in a loss of all, or substantially all, of the investment value.

    Liquidity in a particular security may vary. Stocks that have a smaller market capitalization, trade less frequently, and in smaller volumes, may be more vulnerable to economic, market, and industry changes, and potentially subject to greater price fluctuations.

    Additional Information:

    Additional information on stock basics is available at: https://www.finra.org/investors/learn-to-invest/types-investments/stocks/stock-basics 

    Additional information on investment risk is available at:

    https://investment.jpmorgan.com/securities/available-products#equities-stocks 

    See below for additional considerations on OTC securities.

Over-the-Counter (OTC) Securities

  • What Are Over-the-Counter Securities?

Over-the-counter (OTC) securities are securities that are not listed on a major exchange in the United States, such as the NYSE or NASDAQ, and are instead traded via a broker-dealer network. Generally, smaller companies may not meet the requirements to be listed on a formal exchange trade OTC because they do not trade enough shares, their shares do not trade above a minimum price, or they may not want to pay the listing fees of major exchanges. 

You should consider the following points prior to engaging in trading in OTC securities

  • How Do OTC Securities Trade?

    • OTC Bulletin Board. The OTCBB is an electronic inter-dealer quotation system that displays quotes, last-sale prices, and volume information for many OTC equity securities that are not listed on a national securities exchange. Under the OTCBB’s eligibility rule, companies that want to have their securities quoted on the OTCBB must seek sponsorship by a market maker firm that is a registered broker-dealer as well as file current financial reports with the SEC or with their banking or insurance regulator. The OTCBB operated by the Financial Industry Regulatory Authority (FINRA). The OTCBB is not part of The Nasdaq Stock Market. 

    • OTC Link LLC. OTC Link is an electronic inter-dealer quotation system that displays quotes, last-sale prices, and volume information in exchange-listed securities, OTC equity securities, foreign equity securities and certain corporate debt securities. In addition to publishing quotes, OTC Link provides, among other things, broker-dealer subscribers the ability to send and receive trade messages, allowing them to negotiate trades. OTC Link is registered with the SEC as a broker-dealer and as an Alternative Trading System, and is a member of FINRA.


OTC Link organizes OTC securities into three marketplaces based, in part, on the quality and quantity of available information.

 

Eligible Securities, Order Types & Other Conditions

  • OTC Availability. DriveWealth supports only those OTCs listed on its instruments list. OTC security availability may vary based on your Introducing Firm.

  • Orders. DriveWealth accepts market, limit and stop orders for whole share trading in OTC Securities. DriveWealth accepts market and stop orders, but not limit orders, for Fractional Trading in OTC Securities. DriveWealth may impose maximum trade size limitations in OTC transactions, which may be further limited by your Introducing Firm. 

  • Whole Shares Only and Fractional Trading: DriveWealth supports both whole share orders and Fractional Trading in Fractional Shares in OTC Securities (as those terms are defined in DriveWealth’s Trading Disclosure). 

  • Eligible Securities. DriveWealth supports a limited number of OTC securities. If a security becomes delisted and falls to the OTC markets, DriveWealth will continue to support liquidations in the security but may refuse or limit the ability to increase your existing position. 

  • Market Hours Only. OTC securities may not be available for Extended Hours Trading.

  • No Transfers. ACATs, free deliveries and other transfers associated with OTC securities are not permitted. 

 

Additional Fees May Apply. There may be additional steps and fees when trading OTC securities because trades must be made through market makers who carry an inventory of securities to facilitate trading.

  • Important Considerations for OTC Securities: 

Trading in OTC securities may not be suitable for all investors. All investments involve risk, but OTC securities are among the riskiest and are not generally appropriate for individuals with a low risk tolerance. Potential risks may include, but are not limited to: lack of publicly available information, no minimum listing standards, lower liquidity, higher volatility, and business risk.

 Lack of Publicly Available Information: Most large public companies file reports with the SEC that any investor can get for free from the SEC's website. Professional stock analysts regularly research and write about larger public companies, and it's easy to find their stock prices on the internet or in newspapers and other publications. In contrast, information about OTC security companies can be extremely difficult to find, making them more vulnerable to investment fraud schemes and making it less likely that quoted prices in the market will be based on full and complete information about the company.

No Minimum Listing Standards.  Companies that trade their stocks on exchanges must meet minimum listing standards. For example, they must have minimum amounts of net assets and minimum numbers of shareholders. In contrast, companies on the OTCBB or OTC Link generally do not have to meet any minimum standards, although companies quoted in OTC Link’s OTCQX marketplace are subject to initial and ongoing requirements and companies quoted in the OTCQB marketplace must be SEC reporting companies.

Lower Liquidity. Generally, the more demand for a security, the greater the liquidity for that security.  Liquidity makes it easier for investors to buy or sell securities and they are better able to receive a competitive price for stock bought or sold.  OTC securities may be illiquid and infrequently traded, which may mean that they are more difficult to sell and price accurately. DriveWealth does not guarantee that there will be any market in an OTC security.

Higher Volatility. OTC securities may experience greater price fluctuation and wider spreads due to lack of liquidity and other factors. An order in an OTC security may not execute or may execute at a substantially different price.

Business Risk. Many OTC security companies are new and have no proven track record. Some of these companies have no assets, operations, or revenues. Others have products and services that are still in development or have yet to be tested in the market. Another risk that pertains to OTC Securities involves the low volumes of trades. Because many OTC Securities trade in low volumes, any size of trade can have a large percentage impact on the price of the stock.

Additional information about the risks associated with OTC securities is available from the SEC at: Microcap Stocks: A Guide for Investors. 

 

Exchange Traded Funds (ETFs)

Exchange-traded funds (“ETFs”) are securities that generally track a basket of other securities, without requiring that investors purchase those securities individually. ETF shares are bought and sold on an exchange. Among other things, ETFs combine features that are similar to stocks and mutual funds. For instance, like individual stocks, ETF shares are traded throughout the day at prices on the exchange that change based on market forces. Like mutual fund shares, ETF shares represent partial ownership of a portfolio that is assembled by professional managers.

There are a number of different types of ETFs, each with a different investment focus. ETFs can, for example, track widely followed stock market benchmarks, specific stocks, market sectors, or subsets of broader indices. Other ETFs are actively managed portfolio investments, which may include a variety of different types of securities that may change over time.

ETFs are subject to risks that are like those of other diversified investments. Investing in ETFs involves a variety of different risks, including, but not limited to, market risks and the possible loss of principal, liquidity risks, trading risks relating to transaction costs, and risks that the ETF will close and liquidate. Although ETFs are designed to provide investment results that generally correspond to the performance of their respective underlying benchmarks or indices, they may not be able to replicate exactly that performance because of expenses and other factors. ETFs are required to distribute portfolio gains to shareholders at year-end, which may be generated by portfolio rebalancing or the need to meet diversification requirements. ETF trading may also have tax consequences.

Certain types of ETFs may not be appropriate for all investors. An ETF’s prospectus describes its unique investment objectives, risks, charges, expenses, and other important information. Investors should read and carefully consider all the information in an ETF’s prospectus before investing in that or any other ETF. 

 

Leveraged and Inverse ETFs

Leveraged and inverse ETFs use financial debt to amplify the returns of an underlying stock, index, or other benchmark. These funds seek to deliver positive or negative multiples of the performance of the underlying index or benchmark they track. They are complex investments that come with a unique set of risks and are not appropriate for most retail investors. Potential risks include resetting daily, lack of predictable performance, fees, and tax consequences. Leveraged and Inverse ETFs are complex investments that come with a unique set of risks and may be unsuitable for retail investors.

Leveraged and Inverse ETFs differ from other types of index funds because rather than simply tracking an index, they attempt to provide either a positive or negative multiple of an index’s performance over a specified time—usually just one day (although some may offer monthly or quarterly exposure). For example, a leveraged ETF may offer returns equivalent to 1.5x, 2x, or even 3x the performance of an index during a single day. If the index rose 2%, a 2x leveraged ETF would aim for a 4% return (if it fell, the loss would also be magnified by 2x). Inverse ETFs, on the other hand, deliver multiples in the opposite direction, so if the index rose 2%, a 2x inverse ETF would generate a negative 4% return. These funds use a variety of complex strategies and are not designed to be held longer than the reset periods stated in their prospectuses. That means a fund that aims for a daily multiple should not be held for longer than a single day.

In addition, some ETFs may be linked to single stocks rather than an index or benchmark. These single-stock leveraged or inverse ETFs peg their returns to the stock performance of single companies, including some of the most volatile growth stocks, with inverse ETFs delivering the opposite or multiple of the opposite of the stock gain or loss and leveraged ETFs delivering a multiple of the gain or loss on a given day.

Important considerations for Leveraged and Inverse ETFs:

●      Short term: Leveraged and inverse ETFs are generally used for short term trading. Most of these products are designed to achieve a daily leveraged or inverse objective on a daily basis and reset each day. There is a compounding effect associated with the daily resets which makes the performance unpredictable if the product is held longer than one day.

●      Risk and Lack of Predicted Performance: These securities perform differently than other products. They have the propensity to be more volatile and are inherently riskier than their non-leveraged, non-inverse counterparts. There is always a risk that not every leveraged or inverse ETF will meet its stated objective on any given trading day. The closure rate of these products is significantly higher than non-leveraged or non-inverse product.

●      Fees: Leveraged or inverse ETFs may be more costly than traditional ETFs due to constant rebalancing of their holdings.

●      Tax Consequences: Daily resets can cause these products to realize significant short-term capital gains that may not be offset by a loss. There may be additional tax-related issues, so it is important to check with your tax advisor about the consequences of investing in these products.

As with all products, DriveWealth reserves the rights to, without notice, remove leveraged or inverse ETFs from the platform or designate them liquidate-only due to the volatile and unpredictable nature of these products.

Additional information about the risks associated with leveraged and inverse ETFs is available from the SEC at: https://www.sec.gov/investor/pubs/leveragedetfs-alert.htm and from FINRA at: https://www.finra.org/investors/insights/lowdown-leveraged-and-inverse-exchange-traded-products.

 

Alternative Investments & Complex Products

  • What is an Alternative Investment?

    Alternative investments may include non-traditional, or certain publicly or non-publicly traded alternative investment assets, such as investments in hedge funds, private equity funds, real estate funds and other unregistered funds. Such types of investments may be organized pursuant to exemptions from registration under the federal securities laws and therefore are not offered to the general public.

  • Risks:

Alternative investment products may be both more complex, and more risky, than traditional investment products. Alternative investments may have different and additional tax consequences or structures, suitability determinations, liquidity concerns, may be hard to value, may not be subject to the same regulatory requirements as mutual funds, and may be subject to additional fees. DriveWealth does not endorse or make any recommendations as to the appropriateness of any investment, including alternative investment products. 

Additional information on the risks associated with alternative investments is available at: https://www.finra.org/investors/learn-to-invest/types-investments/alternative-and-complex-products 

 

Mutual Funds

  • What is a Mutual Fund?

Mutual funds are professionally managed, pooled, investment vehicles. The mutual fund raises money by selling its own shares to investors. The proceeds are pooled together to purchase stocks, bonds, and other investment securities based on the fund’s specific investor goals  When you buy shares of a fund you become a part owner of the fund. Each share represents an ownership slice of the fund and gives the investor a proportional right, based on the number of shares he or she owns, to income and capital gains that the fund generates from its investments.

The particular investments a fund makes are determined by its objectives and, in the case of an actively managed fund, by the investment style and skill of the fund's professional manager or managers. The holdings of the mutual fund are known as its underlying investments, and the performance of those investments, minus fund fees, determine the fund's investment return.

Most mutual funds are registered with the United States Securities and Exchange Commision. Certain mutual funds may not be available to all investors based on jurisdiction of registration or other limiting factors. Mutual funds are priced based on their Net Asset Value (“NAV”). To figure its NAV, a fund adds up the total value of its investment holdings, subtracts the fund's fees and expenses, and divides that amount by the number of fund shares that investors are currently holding.

  • Risks & Other Important Factors

Mutual Fund investors own the shares in the specific fund; they do not actually own the underlying securities in which the funds invest. 

NAV isn't necessarily a measure of a fund's success. NAV is calculated once per day and, therefore, a fund could be subject to large price swings without the benefit of intraday price availability. 

Some funds cover the costs associated with an individual investor’s transactions and account by imposing fees and charges directly on the investor at the time of the transactions (or periodically with respect to account fees). These fees and charges are identified in the fee table, located near the front of a fund’s prospectus, under the heading "Shareholder Fees."

Funds that use brokers to sell their shares typically compensate the brokers. Funds may do this by imposing a fee on investors, known as a sales load (or sales charge), which is paid to the selling brokers. There are two general types of sales loads—a front-end sales load investors pay when they purchase fund shares and a back-end or deferred sales load investors pay when they redeem their shares. Some load funds pay DriveWealth for shareholder services out of a fund's assets, typically pursuant to a fund's distribution and/or servicing plan (a Rule 12b-1 plan).

Before buying any mutual fund, request a fund’s prospectus and, where applicable, its Statement of Additional Information or SAI, from your Introducing Firm and read it carefully. The prospectus and SAI contain important information on fees, charges, breakpoint discounts and investment objectives which should be considered carefully before investing.

Additional information is available at: https://www.finra.org/investors/learn-to-invest/types-investments/investment-funds/mutual-funds 


American Depository Receipts

American Depository Receipts (ADRs) are a form of equity securities that offer U.S. investors a way to gain investment exposure to non-U.S. stocks without having to invest through foreign stock markets. ADRs are certificates issued by a U.S. bank or broker that represent one or more shares in foreign stock. To create the ADR, the bank or broker first purchases shares of the foreign-company stock on a foreign exchange, which it holds in the foreign market. Then, after the bank or broker issues the ADR certificate, it may trade on a U.S stock exchange, such as the New York Stock Exchange, or it may be traded over the counter (OTC). ADRs that are listed can be traded, settled, and held as if they were ordinary shares of US -based companies.

ADRs are denominated and traded in U.S Dollars and are cleared through U.S. settlement systems. ADR holders are not subject to non-U.S. stock transaction fees. Proceeds from selling an ADR, however, may be subject to U.S. captain gains taxation.

ADRs are subject to periodic fees that are intended to compensate the agent bank that is providing custodial services in connection with the ADR.  Custodial services normally include inventorying the foreign stocks underlying the ADR and managing all registration, compliance and record-keeping services. In 2009, the Depository Trust Company (DTC) received approval from the US Securities & Exchange Commission to begin to collect these fees on behalf of the agent banks for ADRs which do not pay periodic dividends.  DTC collects these fees from its participant brokers, including DriveWealth, that hold the ADRs for customers; these fees are collected by the broker from its customers as “pass-through fees.”

ADR fees tend to range from $0.01 - $0.03 per share, the amount varying by ADR. Please refer to the prospectus for the ADR for information on the ADR Fee. 

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