Exchange-traded products
Exchange-traded products are a broad category that allow for leveraged investments in assets that might otherwise be inaccessible to private investors.
Asset classes such as commodities, currencies and indices where you may need to use financial instruments such as options and futures to invest in which may result in exposure to implied volatility or time value, which you may not want. Through Mini Futures, Bull & Bear certificates and Unlimited Turbos, it is easier for investors to gain leveraged exposure to these asset classes. However, what many people wonder about is the cost of trading these types of products.
Vontobel is one of the leading issuers of exchange-traded investment products in the Nordic region with over 14,000 active instruments. The current offering includes exchange-traded certificates, leveraged products and structured products with exposure to a wide range of underlying asset classes adapted for different types of investments.
Bull & Bear certificates can be suitable for day trading, in other words, intraday trading where you can take advantage of the daily leverage in shorter movements and trends. It is important to keep track of the barrier and the current distance to it. This is because a barrier event, also called “intraday index adjustment”, can be equated to realising the loss and reinvesting the remaining amount. The product itself is not suitable for a buy and hold strategy.
Mini Futures and Unlimited Turbos are other types of products whose popularity has increased over the past year, Mini Future can be used in strategies based on support and resistance in the technical analysis due to the built-in knock-out (automatic termination) after the stop-loss level (or barrier) has been reached. This makes it easier to follow your own strategies over a shorter period of time. However, it is important to know that the stop-loss level and strike price over time changes closer to the current value of the underlying asset.
It is also possible to gain exposure to underlying assets without leverage using Tracker Certificates linked to certain investment themes, indices and commodities. A possible complement in a long-term portfolio or hedge in uncertain times.
Investors in the products (securities) are exposed to the risk that the Issuer or the Guarantor cannot fulfil their obligations under the products. A total loss of the invested capital is possible. Due to the leverage effect, there is an increased risk of loss with leveraged products, such as Bull & Bear certificates, Mini Futures and Turbos.
What do you pay when you trade Exchange Traded Products?
When shopping for food, it is easy to go to a shop and compare the price you pay between different products. You have a price and many items also have a price per kilo and it's relatively easy to see the difference between the range of products on offer if you look at it. But when trading Exchange Traded Products there is a huge range and Vontobel itself issues more than 10,000 products in the Swedish market.
There can be a plethora of products on the same underlying, many of which may be similar but there are distinct differences that can be crucial in your trading and what you actually pay for this type of investment product.
Spread
What most people are familiar with is the spread, which is a cost that investors pay directly when buying a product. The spread is the difference between what you buy and sell the product for. A higher spread results in the underlying reference having to have a larger change in the direction of the strategy in order for you as an investor to break even. The spread also affects the final result. The spread is therefore one of the key costs that an investor pays in exchange-traded products. In addition, the spread tends to be the largest cost in transactions, especially in short-term trading.
Financing costs
When holding a certificate longer than intraday, investors also pay a cost in the form of a financing cost. This can be in the form of an index fee or a financing spread depending on the product. This information is stated in the product documentation (final terms, key information document) and on the product page and is measured on an annual basis. The value of the product is reduced overnight either by an adjustment to the index with that fee or the strike price moving closer to the current value of the underlying. The index fee is relevant to Tracker Certificates and Bull & Bear Certificates while the adjustment of the strike price is made on Mini Futures and Unlimited Turbos.
Interest rate
When adjusting the funding spread, interest is also charged on a daily basis. This is also quoted on an annual basis. This means that if you want to calculate the daily adjustment, you have to divide by 360 days.
Other charges
In addition, your bank or broker may charge a fee for trading, known as a brokerage fee on the trade.
Conclusion
As mentioned earlier, it is generally the spread that accounts for a large part of the cost. An investor who buys a product for 2000 SEK with a spread of 0.15% pays 3 SEK in spread but an investor who buys a product with a spread of 1.2% pays 24 SEK, and at larger amounts this can have a significant difference. A bit like how the kilo price works in the supermarket.
Vontobel's exchange-traded products such as Mini Futures, Unlimited Turbos, Bull & Bear certificates and Trackers are available on Avanza and Nordnet. The products are listed on the Nordic Growth Market (NGM) exchange in the NDX (Nordic Derivatives Exchange) market for derivatives and structured products. Before you invest you should understand the products and the costs and risks associated with an investment, you can visit www.markets.vontobel.com.
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 performance.
Investors in the products are exposed to the risk that the Issuer or the Guarantor may not be able to meet its obligations under the products. A total loss of the invested capital is possible. The products are not subject to any deposit protection.
The value of the products can fall significantly below the purchase price due to changes in market factors, especially if the value of the underlying asset falls. The products are not capital-protected
Due to the leverage effect, there is an increased risk of loss (risk of total loss) with leverage products, e.g. Bull & Bear Certificates, Warrants and Mini Futures.
Product and possible financing costs reduce the value of the products.
If the product currency differs from the currency of the underlying asset, the value of a product will also depend on the exchange rate between the respective currencies. As a result, the value of a product can fluctuate significantly.