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With certificates, it is possible to bet on falling, rising, stagnating, and very volatile prices of one or more underlying securities. The term is regularly unlimited. The contractual structure differs significantly. They range from bonus models to cap certificates, a precise price representation through to knock-out securities. Trading takes place both on the stock exchange and OTC. In the latter case, the issuer makes the market. In contrast, difference contracts are less diverse. Apart from the leverage with which certificates can also be equipped, the contract modalities are more transparent.
Airbag certificates participate fully in the price development of an underlying asset and have a specific downward protection up to which the investor does not suffer any losses. In other words, as long as the underlying does not lose more than a predefined level, the capital is 100% protected. This level is referred to as the airbag, named after the safety system installed in cars which aims to reduce injuries in the event of an accident. Below the airbag level, the product begins to lose value compared to the underlying in a leverage ratio. However, it remains above the underlying until the asset loses its value. Essentially, the product is no different than bonus certificates, with the only big difference being that the airbag does not knock out. It remains until the product is mature, no matter what happens. So there is no gap (no vertical line in the payout chart) like in the bonus certificate.
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A bonus certificate is an alternative to a direct investment in a stock or index. Investors use it above all when they believe that despite rising prices, setbacks are still to be expected. A bonus certificate has a bonus amount and an upper and lower price level. When the certificate expires, and the price of the underlying asset is between these two levels, the owners receive their bonuses. If the Underlying was at or below the risk level during the term of the certificate, its price would be equal to the current value of the certificate at the end of its term. If the underlying asset is above the upper level at maturity, the investor participates fully in the price gains. Some profit participation certificates have an upper-profit limit. Here the certificate stops participating in the price gains of the underlying asset. A bonus certificate is issued at the current price of the underlying asset. The upper-level results from the addition of the bonus to the issue price. The lower level is determined at the time of issue and is generally expressed as a percentage.
Discount certificates allow you to buy an underlying asset at a price below the current market price. However, the maximum amortisation of a discount certificate is limited to a specified amount (cap). The lower the cap, the higher the discount. Discount certificates generally have a term of one to three years. At maturity, the price of the underlying asset is determined. If it is at or above the cap, you receive the maximum yield and the payment of the amount reflected by the cap.
At the time of issue, classic “Express” certificates usually have a maximum term of 3 to 6 years. A specified “observation date” is set for each year. If the price of the underlying asset on the observation date is at or above a particular threshold value, the certificate is redeemed prematurely. This means that you receive an early amortisation of your investment with a total return that is usually in the range of 5 to 8 per cent on an annualised basis.
With tracker certificates, you have a cost-effective and straightforward way to invest in an entire stock exchange without having to buy every single share. Besides, tracker certificates facilitate your access to exotic markets where you usually cannot even trade through your bank or broker.
Twin Win Certificate
The name already indicates the result – with a Twin Win certificate you can have it in both directions. In other words, this type of structured financial product generates a profit not only if the price of the underlying asset rises, but also if it drops to a certain extent. And this with a special built-in safety mechanism. The unique structure of these financial intruments makes it possible to turn a small loss of the underlying into a small profit. Speaking of “having your cake and eating it too”, Twin-win certificates are suitable for investors who are convinced that the underlying has a good chance of rising. If this is the case, the built-in leverage of the product allows you not only to participate 1:1 in this upward movement (as would be the case with a normal tracker certificate), but instead to do so disproportionately quickly and without price restrictions.
Steff has been actively researching the financial services, trading and Forex industries for several years.
While putting numerous brokers and providers to the test, he understood that the markets and offers can be very different, complex and often confusing. This lead him to do exhaustive research and provide the best information for the average Joe trader.