Factor Certificates: Bet on short-term price changes

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 fall as continuously as possible or for intraday trading. With regard to their individual risk tolerance and return expectations, it makes sense for investors to deal in detail with the underlying asset and its development prospects. Once you have decided on an underlying asset, you can contact issuers such as Vontobel*, Societe Generale* and Co. are looking for a factor certificate that is suitable for you.

Factor Certificates are usually available with leverage from 2 to 10. The higher the leverage, the more speculative the certificate is and the higher its chances, but also its risks. In addition, the chances of constantly rising or falling prices increase with the level of leverage, but also the risks of volatile sideways movements and downward movements of the underlying index. In addition, the daily financing costs also increase with the leverage.

In addition, investors should always bear in mind that due to the daily adjustment transactions that are necessary to maintain the constant factor – namely increasingly selling the underlying asset when markets are falling and buying it back when markets are rising – each Factor Certificate will eventually trade 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 with investments in commodities, since these are settled worldwide in US dollars. In principle, changes in exchange rates can be either positive or negative.

If the euro appreciates against the respective foreign currency, this has a value-enhancing effect on the certificate. Conversely, a value-reducing currency effect occurs if the foreign currency appreciates against the euro.

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

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