Let’s assume a long factor certificate with a 10x leverage factor. The reset threshold varies depending on the leverage factor. If an underlying for a factor certificate loses more than a certain percentage of its value intraday, the calculation is reset by simulating a new day. To illustrate with an example:Ĭumulatively, the factor certificate has returned less than 3x the performance of the underlying. However, for a period of more than one day, the cumulative performance of the underlying cannot be simply multiplied by a factor of 3 as the previous day’s price always forms the new basis of calculating each day’s performance for the certificate. The next day the process is repeated, referencing the prior day’s underlying close.Īs such, factor certificates are particularly suitable for day-traders. If the underlying returns 1% on the day, the value of 3x certificate increases by 3%, a 5x by 5%. The performance of the certificate is calculated daily, without reference to previous days’ values. To avoid a loss greater than the investment, the calculation resets intraday if the performance of the underlying threatens to render the certificate worthless. Unlike knock-out warrants and mini-futures, factor certificates do not have a knock-out barrier. Factor certificates employ a daily leverage factor that multiplies the daily performance of the underlying instrument.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. Archives
December 2022
Categories |