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Factor certificates – this is how you achieve profits with leverage


How to find the best factor certificates

Investors should develop a differentiated market assessment before buying factor certificates, as these products are only suitable for markets that are falling as continuously as possible or for intraday trading. With regard to their individual willingness to take risks and expected returns, it makes sense for investors to deal in detail with the underlying asset and its development prospects. Once you have decided on an underlying, you can search for issuers such as Vontobel, Société Générale and Co. to find a factor certificate that is suitable for you.

Factor certificates are usually available with levers from 2 to 10. The higher the leverage, the more speculative the certificate and the higher the chances and the risks. In addition, the higher the leverage, the greater the chances of a constant rise or fall in price, but also the risk of volatile sideways and downward movements in the underlying index. In addition, the daily financing costs increase with the lever.

In addition, investors should generally take into account that the daily adjustment transactions that are necessary to maintain the constant factor – namely to sell the underlying asset increasingly with falling markets and to buy them back with increasing ones – will eventually trade each factor certificate at a price close to zero euros.

If an underlying is quoted in a foreign currency, the investor takes on an exchange rate risk with the factor certificate. This is particularly the case for investments in commodities, as these are settled worldwide in US dollars. Exchange rate changes can in principle be both positive and negative.

If the euro appreciates against the respective foreign currency, this has a value-increasing effect on the certificate. Conversely, a currency impairment occurs when the foreign currency appreciates against the euro.

Our recommendation: If you want to keep the currency risk low with your investment, you can choose a currency-optimized factor certificate. The daily profit or loss of the futures used to represent the factor is converted into euros. This means that only the exchange rate gains or losses achieved within a trading day are subject to currency effects. The amount invested by the investor, which changes as a result of the daily gains or losses, remains quoted in euros and bears interest at the corresponding EONIA rate.

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