Tutorial: Participation certificates

Price of DAX participation certificate = price of the nearest futures contract x RATIO x EURCZK.
 
 
The performance of Participation certificate depends on the performance of the futures contract, the RATIO and FX rate of USDCZK /EURCZK. The certificate always monitors the nearest futures contract on the NYMEX / ICE / CME / CBT / EUREX. Of course, the certificate has unlimited maturity. Thus, the roll-over or “rolling” of the contracts must take place regularly shortly before the expiry of the nearest futures contract.
Roll-over means that an expiring futures contract is sold and the next nearest futures contract is bought. There may be or usually is a change in the RATIO during roll-over. On the one hand, roll-over is encumbered by selling and buying costs of futures contracts and, on the other, there may be losses or profits.
Profits during roll-over arise when the price of the expiring futures contract is higher than the price of a new futures contract (so-called “backwardation”). More could be invested in new futures contract and the RATIO rises.
Losses during roll-over arise when the price of an expiring futures contract is lower than the price of a new futures contract (so-called “contango”). And so less may be invested in the new futures contract and the RATIO falls.
The higher the RATIO the more the client participates in the growth of the futures contract.
The increase of the USDCZK / EURCZK exchange rate (so-called weakening of the crown against the USD / against the EUR) supports the rise of the certificate price. In contrast, the fall in the USDCZK / EURCZK exchange rate (so-called strengthening of the crown against the USD / EUR) supports the fall of the certificate price.