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Tutorial: Index / Commodity certificates

What are index / commodity certificates?

With an index certificate, you can directly benefit from the development of the underlying instrument. It allows you to diversify the risk, because you do not invest in one specific security, but in an index – such as for example the DAX. This way your investment is not influenced by the fluctuations in one security, but by the combined development of all the securities contained in the index.

The losses of one group of shares may be offset by the gains in another group in the index. Your overall risk is therefore lower if you hold an index certificate than if you hold specific shares. In the case of commodity certificates the underlying asset is a certain commodity – for instance gold, crude oil.

How do index / commodity certificates work?

Index / commodity certificates are issued at a certain exchange ratio relative to the underlying instrument. Most often they are traded at 1:100 or 1:10 to the index / commodity price. This means that if for example the DAX is at 8,000 points, one index certificate with an exchange ratio of 1:100 to the ATX costs EUR 80. By the way, index certificates are a cost-efficient form of investment in that they come with no load or management fee.

Your benefits

If you are convinced of future price rises of an index / commodity, index / commodity certificates are a price-efficient way of investing in the underlying instrument. The certificate reflects the price movements of the underlying index / commodity 1:1. Issuers basically charge no load or management fee on index / commodity certificates.

Your advantages

  • You benefit directly from the development of the underlying. This means that in the case of a rising market, your potential gains are not capped.
  • Index certificates are a cost-efficient form of investment.
  • Index certificates are an easy way for you to diversify the risk.

Details you should be aware of

  • Falling markets translate into losses for index / commodity certificates.
  • An index / commodity certificate can never outperform the underlying.
  • If this is not a quanto certificate or the certificate is not secured against a currency risk, the performance of the certificate is affected by the positive or negative trend of the exchange rate between the certificate’s currency (CZK) and the currency in which the underlying asset is traded. If CZK strengthens, the price of the certificate falls and if CZK weakens the price of the certificate rises.

How do index / commodity certificates react to…

… rising markets?
Rising markets mean proportionately rising index / commodity certificates. If the DAX increases for example from 8,000 to 8,800 points, i.e. by 10%, the value of the index certificate will also rise by 10% from EUR 80 to 88 (in the case of an exchange ratio of 1:100).

… stable markets?
If the index / commodity does not move, the index / commodity certificate will not move either.

… falling markets?
Falling markets mean proportionately falling index / commodity certificates. If the DAX declines for example from 8,000 to 7,200 points, i.e. by 10%, the value of the index certificate will also decline by 10% from EUR 80 to 72.


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