Investment Products and Leveraged Products - A World of Possibilities
Welcome to the world of investment products and leveraged products. On the following pages, we wish to give you an overview of the options that unfold with the jacks-of-all-trades of the stock exchange. The central issue is the question of which product is best for which investor. You will see that investment products and leveraged products allow you to pursue different strategies. Strategies that do more than aim at higher earnings. You can also bring stability and security to a portfolio with certificates - certificates fall into the investment product category. Ultimately, you are the one who will decide which goal to purpose.
What are investment products and leveraged products?
In the stock market, investment products and leveraged products belong to the structured products group. They are called this because they are composed of multiple components. Their price development depends on the market development of another value. The other value may be the stock of a company, an index like the DAX, a currency pair such as Euro/US dollar, or a commodity or the interest rate developments in the international markets. The underlying value in such a case is called the underlying asset.
Why invest in investment products and leveraged products?
A general answer is that the buyer does not only wish to invest indirectly in the underlying asset, but also to receive extra benefits. Often, this means receiving a higher return. Sometimes the purchase of the underlying asset is not so simple, however. The purchase of a barrel of oil is directly tied to a storage problem. Or do you want to keep a container, a barrel of oil - that’s 159 litres, after all - in your living room at home?
The basic idea behind investment products and leveraged products
Investment products and leveraged products differ from each other on a few key points. However, both product types are based on the same general idea: avoiding losses and maximising profits. A basic idea with historical roots, since structured products are a principle as old as human economic behaviour. Whenever goods were bought and sold, producers and traders strove to protect themselves against price fluctuations and to obtain as secure and calculable a return as possible. The purchase of a structured product can ensure the buyer of the right to be able to sell a certain good at a fixed price at a fixed point in time. This frees him from the dangers of price fluctuation. The purchase of a structured product also minimises risk and maximises profit. This basic idea is also embodied in modern leveraged products like knock-outs or warrants, as well as in various investment products.
The right product for each investor
But what kinds of investment products and leveraged products are there? What kind is best for what investor? In order to provide a better overview of the wide variety of structured products traded in the stock market today, the European Structured Investment Products Association (eusipa) has introduced a standard classification for investment products and leveraged products.