Education

Vontobel's Bull & Bear - certificates make it possible to trade with leverage in a simple way, while tracking follows known and new trends

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Vontobel Markets
09/08/20225 min read
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The stock year 2021 was a gracious year for new private investors. On the back of the economic uncertainty that came with the Corona pandemic, markets overall came back with an unusual force and showed increases in many index funds, mutual funds and on individual stocks for most of 2021. Double-digit returns sounded like the new normal and many investors had extremely good financial experiences with their first do-it-yourself investments. But the illusion that the markets have only one direction, namely towards new records, was mercilessly shot down with a sharp correction with double-digit price declines from the beginning of the year 2022 - and in the first months of the year several areas have been in so-called bear territory, that is, with negative price development and losses.

The US Federal Reserve has announced a total of six rate hikes in 2022 and therefore financial markets and investors, large and small, must also get used to the fact that money is no longer free. In February, Russia's Invasion of Ukraine spread further fears and unrest not only among the world population but also in the financial markets.

Vontobel's Bull and Bear certificates are securities that enable private investors to participate in market movements whether global markets go up or down. But as with any other investment, you can both make and lose money and it is of course important that you understand that risk.

How do you use Bull and Bear certificates?

Vontobels Bull and Bear is a financial product with leverage. This means that you can put extra investment power behind your belief in whether the market for a particular asset or the overall market should rise or fall. It can be the certificate follows a cryptocurrency or the Tesla stock, but it can also be built on precious metals or raw materials or something completely different. Common to leverage products is that you wonder about the possibility of achieving a  disproportionate investment performance on fluctuations in the market because you believe that the market will move in a certain direction and bet on it with your investment.

You can also use Bull and Bear certificates to hedge against corrections in the market by investing with leverage in assets that react the opposite of your other investments. An example of assets moving opposite each other is gold, which as a rule of thumb rises when the general stock market falls.

Leverage products, such as Vontobel's Bull and Bear certificates, can also be used for spreading your investments across different products, because the certificates can be bought and sold easily and at a price level that most people - including private investors - can participate in. As a provider and so-called “market maker”, Vontobel provides both buying and selling prices, which means that you as an investor can get in and out of your investment quickly and easily under normal market conditions.

With up to 4,000 different certificates, each designed based on a wide range of underlying assets, you as an investor can lay out and implement your own investment strategy. Vontobel's certificates are both long and short, which means that one speculates that the market or the underlying asset rises (the long ones) or falls (the short ones).

In particular, the short (Bear) certificates can be used to cover as a hedge other individual stocks, index funds, entire equity portfolios or other investments you have and where you are betting on growth.

But it is important to emphasize that leverage products such as Bull and Bear certificates are more sophisticated products than e.g. single shares in a company. Therefore, it is good to have a high risk tolerance and sufficient experience.

HERE you will find Vontobel's online tool where you can find the various Bull and Bear certificates. There is a wide selection where you can see prices and choose which factor you want to leverage your long or short investment with.

How leverage works with Bull and Bear certificates

As an investor in Vontobels Bull and Bear certificates, you can only lose the amount you invest. This is due to the structure of the way the certificate is structured, namely as a debt product. Especially when we talk about the short Bear certificates, it's an important point. The bear certificates are basically short-selling, ie the type of trade you can make as an investor, to make money on an asset that you think will fall in price.

The principle is, in short, that you borrow an asset e.g. a stock, it can typically be of a stockbroker who takes a fee to enter the market and find the stock you want to short. The borrowed share must be returned within a certain period of time and therefore you must be fairly confident in your day. Now you sell your borrowed share for the market price of the day - let's for convenience say for 100 DKK.

Then you wait for the stock to fall, as you had bet on. The day after, the stock has fallen e.g. to 70 DKK, after which you buy it again in the market and hand it back to the lender, after which you have earned 30 DKK.

It sounds easy, but it can be an extremely risky affair because the stock may not fall as one had anticipated. If, on the other hand, the share rises, you as a short seller have to go to the market and buy the share, because you have to hand it back where you borrowed it. If the price has risen to 130 DKK, you have suddenly lost 30 DKK. In theory, there are no limits to how bad it can go because the price of the borrowed asset can in principle increase indefinitely, which makes investing in some “short” products extremely risky.

But because Vontobel's certificates are structured products, you as an investor can never lose more than you paid for the certificate when you bought it, neither on the Bull nor the Bear products.

Both the long and the short certificates can be purchased with leverage. Here you buy the certificate with a leverage factor from 2x to 18x, but it is built into the certificate's structure that Vontobel provides you the leverage without you risking getting an extra bill if the asset does not rise or fall as expected. The worst that can happen is that your certificate loses all its value and you lose all the amount you paid when you bought it.

Because you as an investor buy the certificate from Vontobel, there is in turn an issuer risk, which means that if Vontobel goes bankrupt, your certificates lose their value because you bought the security from Vontobel and do not as such own a specific share in a company or another asset. Certificates are not subject to any deposit protection.

Certificates perform best when the markets are moving steadily

In addition to being the name of leverage certificates, “bull-market” and “bear-market” are also terms used to describe the state and direction of the general financial markets. Since the financial crisis back in 2008, the markets in the USA and Europe in particular have been characterized by steadily rising trends, ie bull markets with few corrections in between, e.g. in 2018 and in the spring of 2020, when the Corona pandemic began.

Vontobel's Bull and Bear certificates work best during periods of steady growth or steady downward trends. The level of leverage you choose in connection with your investment in a certificate remains fixed throughout the life of the certificate and as an investor you benefit from either increases or decreases without owning the underlying asset yourself. At the same time, you can not lose more than the amount you have invested.

On Vontobel's index portal, you can see the various leverage factors and search for the various underlying assets in which you can invest with certificates.

Finally, it is worth knowing that the Bull and Bear Certificate does not provide current income in the same way that certain stocks and mutual funds do, in the form of returns, interest or dividends.

Risks

This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future result.