Been following the developments in the financial markets for quite some time now? Already gained some experience in trading stocks or investment funds? Annoyed by the fact that you’ve only been able to profit from rising prices but lose money when the market goes down?

In this part, we’d like to give you an initial overview of instruments that open up new opportunities for you in the financial markets:

Welcome to the world of structured products!

We’ll introduce you to products that can help you to earn attractive returns regardless of whether the markets are going up, down, or simply marching in place. You’ll learn which product types make sense in which market phases, how to trade structured products, and what the associated risks are.

But there really is one thing you should bring along on this journey: your own best guess of the direction the market might take in the coming months. So are you ready? Then let’s take a walk! 

The growth in the number and variety of investment products has persisted for years now – not only in Switzerland. Innovative products make it possible for you, as an investor, to benefit from practically any price move in a specific underlying instrument, be it a stock, index, currency or commodity (whereby fixed-income securities or investment funds can also serve as underlying instruments).

It should be noted that investments in structured products are not – as is often claimed – generally more risky than a commitment to shares. In fact there are numerous product types that, in contrast to direct investments, offer safety mechanisms or even capital-protection guarantees. Equally spoken, there are also those that pose a greater risk of loss than a direct investment if “the stars align” in a certain way. Thus the difficulty for most investors mainly comes from the broad array of structured products on offer…and picking the right one.

For example, the so-called «leverage products» such as warrants, knock-out securities and mini-futures are best suited for investors who are ready, willing and able to bear risks. These products respond disproportionately to price moves in the underlying instrument and are therefore more advisable for investors who’ve already gained experience with shares and other riskier forms of investment. Leverage products are just as easy to trade as stock and bonds, but because of their special characteristics we’ve created individual brochures for them that you can feel free to download from our website.

Been following the developments in the financial markets for quite some time now? Already gained some experience in trading stocks or other investment products? Have you learned from your past mistakes and got a grip on your emotions? Want to profit like the pros from rising as well as falling prices? Are you ready, willing and able to accept a certain degree of risk?

In this part, we’d like to give you an initial overview of instruments that open up new opportunities for you in the financial markets. Leverage products can just as well be used for hedging your portfolio as they can be for speculative purposes. We’ll show you how these products can be easily evaluated and the risks they entail. So are you ready? Welcome to the world of leverage products!

The effect of leverage Leverage products react disproportionately to price movements in a specific “underlying instrument”. Underlying instruments mainly take the form of shares, indices, currencies or commodities. “Leverage” simply means that large percentage gains can be achieved by putting only a modest amount of capital on the line. But of course leverage is a door that swings both ways: if your assessment of the market is wrong, sizeable losses can add up quickly – even to the extent that you lose your entire investment.

Depending on the specific product type, leverage products can gain in value from either rising or falling prices. Those that benefit from price declines are also well suited for hedging your portfolio against losses. And on the Scoach trading platform, all of these products are just as easy to trade as stocks or bonds. Regardless of whether you wish to use leverage products or other types of structured financial instruments, Scoach guarantees the highest standards.

Leverage products come in a wide array of flavors, whereby most investors only have a taste for the three major product types: warrants, knock-out warrants and mini-futures. So let’s take a brief look at those three varieties:

• Warrants have for years been a part of daily routine in the Swiss securities marketplace. The price of warrants is primarily driven by price movements in the underlying instrument. But there are also other factors that play a role in determining the price of a warrant, in particular “volatility” (i.e. the degree of price fluctuation that the underlying instrument demonstrates). Thus the pricing of a warrant is comprehensible only if you have come to understand the influence that volatility actually has.
• Knock-out warrants are a relatively new concoction but have gained enormous popularity practically over night. In contrast to warrants, volatility has little or no influence on knock-out warrants, thus the pricing dimension is easier for investors to comprehend. But the leverage of a knock-out product is frequently even a bit higher than that of a comparable warrant, so they also harbor an additional risk: if the price of the underlying instrument penetrates a predetermined threshold level on the upside or downside, the knocked-out security becomes immediately deliverable. In simple terms, this means that when a «knock-out event» occurs, the product becomes valueless…instantaneously. Depending on the features of the particular product, it is nevertheless possible that a residual value will be paid to the investors.
• Mini-futures are growing in popularity. As highly transparent leverage instruments, they’re not only suitable as for speculation purposes, but also as a means of hedging share portfolios, foreign currency positions and interest rate risks. The value of a mini-future is easy to calculate. In doing so, it isn’t necessary to have a command of warrant-specific factors such as volatility and “time value”. 
  Mini-futures are a welcome alternative to warrants. They have no term limitation; only if a stop-loss limit is hit will the position be automatically liquidated. Here again one speaks of a knock-out event. Because mini-futures are not subject to the influence of volatility, they directly mirror the price movements of the given underlying instrument. For warrants, knock-out warrants as well as mini-futures, there are product types that benefit from either rising or falling prices:
  
  - Call warrants and long mini-futures gain in value when the price of the underlying instrument increases. In the case of a knock-out warrant, the corresponding product type is frequently referred to as a «knock-out call» or «turbo call».
  
  - Put warrants and short mini-futures profit when the price of the underlying instrument declines. Accordingly, the related knock-out products are known as «knock-out puts» or «turbo puts».