Accelerate your investments with bull and bear certificates

Bull & Bear are terms that describe your belief that the value of the underlying asset will rise or fall.

When you invest in Bull certificates, it means that you expect an increase in the value of the underlying reference asset. This is also known as 'going long'. If the value of the asset rises, the value of your Bull certificate will also rise. Conversely, if the value of the asset falls, the value of your Bull certificate will also fall. For example, a certificate that tracks gold will rise in line with the price of gold.

When you invest in Bear certificates, it means that you expect a decrease in the value of the underlying reference asset. This is also known as 'going short'. If the value of the asset falls, the value of your Bear certificate will rise. And if the value of the asset rises, the value of your Bear certificate will fall.

For example, if you believe in a positive development of the Swedbank share, you can buy the product 5x Long from the product issuer Vontobel.

At first glance, the names of the certificates may seem a bit convoluted, but in fact they describe which asset the product follows and with which leverage. Like in this case, BULL SWEDA X5 VON1, which indicates that you are buying a bull certificate that follows Swedbank's share, that it is five times leveraged and that the Swiss issuer of structured products Vontobel (VON) is behind the certificate.

On Nordnet's page for the certificate, you can also see the so-called ISIN code, which is a simple way to specify a code for this particular product. Once you have an ISIN code, you can enter it in the search box and thus find a specific product.

The certificate works in such a way that if the price of Swedbank rises by 1% during a day, the certificate rises by 5% on the same day. Similarly, there is of course a risk of losing 5% if the share loses 1% in value during the day. Similarly, there are certificates for all the other major Swedish shares, such as Boliden, Ericsson, Evolution, HM, Volvo, Nordea and Trelleborg. They can be searched via this page.

At the top of the ISIN/Name field, you can enter the name of the share or the unique ISIN product code, if you have it.

Certificates have a number of advantages over other leveraged products, including:

• Low costs. The price of the products varies depending on the provider you choose, and you can save a lot of money if you understand how costs are calculated. Below is an example of the costs you can expect when trading certificates.
• Availability. You can usually trade the certificates for small amounts if you wish, making it possible for smaller investors to trade the products.
• Liquidity. Under normal market conditions, it is usually always possible to trade the certificates, as the provider sets a bid and ask price, ensuring that you can trade your certificate. However, a liquidity risk may arise in markets where there are large price fluctuations or where technical interruptions may disrupt trading.

Investors should be aware that leverage is reset every day. This adjustment makes it possible to keep the leverage constant, so the investment can be seen as a reinvestment on a daily basis.

Bull & Bear certificates can provide the opportunity for high profit, but of course also for high loss as there is leverage in both directions. The certificate can lose value when there are phases where the market goes sideways, even though the price of the underlying reference asset has not changed for a long period of time.

Here is an example to show what this means. If you buy a 5x long certificate on the German index DAX for EUR 100, it could develop as follows:

If the DAX were to fall by 2% the following day, the so-called factor index would lose 10% and would now have a price of 90 points. The factor index reflects the movements of the reference index, in this case the DAX index, on a daily basis and the price movements are amplified by the leverage effect (the factor).

If the DAX recovers the day after its initial level - i.e. a 2.04% increase from 98 to 100 - the factor index will not trade at 100, but only at 99.18, even if the price of the underlying asset is back at the same level. This is because the price is calculated as 90*(1+(2.04*5%/100))=99.18 EUR.

As a result, the factor index would have lost 0.82% percent, even if the price of the reference instrument would have traded at the original level.

Bull and bear certificates are therefore not suitable for a medium- to long-term buy-and-hold strategy.

When buying a certificate, you should also be aware that you are buying the certificate from an issuer. This means that there is an issuer risk and money is lost if the provider goes bankrupt. Certificates are not protected by investment or deposit insurance.

Certificates are usually passively managed investments, which means there are fewer administration costs. This makes certificates a relatively cheap financial product to invest in. Let's take an example that shows how you can invest in a leveraged version of Microsoft stock. For example, you can do this with the BULL MSFT X3 VON4 certificate.

If you buy and sell the certificate on the same day, you only pay the so-called spread. This is the difference between the buy and sell price, shown in the left-hand corner of the screen, and it is usually a fairly modest cost - at the time of writing 0.47%. The spread is also shown as a percentage in the upper band of Nordnet's screen and can vary throughout the day.

It is worth paying close attention to the spread, as certificates from different providers can have very different spreads and you should try to minimize costs where possible. If you hold the certificate for a longer period of time, you will also pay a funding spread and an index fee of 0.5% and 1.0% per annum respectively. This represents an additional cost of around 0.006% per day, assuming there are around 250 trading days in a year.

The certificates can be traded on Nordnet, and investors should be aware that the platform may add additional costs when buying the certificate. On Nordnet, you can click on "See cost breakdown" before buying to see the total costs associated with the purchase.