Monday, January 17

Factor Certificates – How to Make Leverage Profits


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 risk tolerance and expected return, it makes sense for investors to examine the underlying asset and its development prospects in detail. Once you have decided on an underlying asset, you can use issuers such as Vontobel, Societe Generale and Co. are looking for a suitable factor certificate for you.

Factor Certificates are usually available with levers from 2 to 10. The higher the leverage, the more speculative the certificate and consequently the higher its opportunities, but also its risks. In addition, the greater the leverage, the greater the chances of constantly rising or falling prices, but also the greater the risk of volatile sideways and downward movements in the underlying index. In addition, the daily financing costs also 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 increasingly selling the underlying asset with falling markets and buying it back with rising markets – will mean that each Factor Certificate will trade at a price close to zero at some point.

If an underlying is quoted in a foreign currency, the investor assumes an exchange rate risk with the factor certificate. This is particularly the case with investments in commodities, as these are settled in US dollars worldwide. Changes in exchange rates can in principle be positive as well as negative.

If the euro appreciates against the respective foreign currency, this has a value-increasing effect on the certificate. Conversely, there is a negative currency impact when the foreign currency appreciates against the euro.

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



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