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Investment Tools to Consider in Times of Volatility

Investment Tools to Consider in Times of Volatility

What is Volatility?

It is a period of time when markets or securities rise or fall sharply, and is usually characterised by wide price fluctuations and heavy trading. High volatility mostly associates with periods of falling prices.

15%
10%
5%
0%


What causes volatility?

Volatility is typically caused by events that trigger sudden mass selling of securities by investors or fund managers. For instance:

Non-ideal economic or financial reports

Geopolitical uncertainties

Pandemics

Other unforeseen (Black Swan) events



Bullish or Bearish

In times of volatility, you can either take a bullish or bearish view to benefit from market fluctuations in both ways.

Bullish View

If you have a bullish view, you believe that prices will rise.

You may then consider to take a ‘long’ position and benefit from potential rising prices.

Bearish View

If you have a bearish view, you believe that prices will continue to decline.

You may then consider to take a ‘short’ position and benefit from potential falling prices.

Investment tools to consider in times of volatility

There are Investment tools designed for individuals to trade over short periods of time, and on an intra-days basis. Listed on Singapore Exchange, the following investment tools issued by third-party financial institutions allow SIP-qualified investors to participate and benefit from both bear and bull markets.

Structured Warants issued by Macquarie Group

Daily Leverage Certificates (DLC) issued by Societe Generale

Structured Warrants

 

What are Structured Warrants?

Structured warrants offer investors an alternative instrument to participate in the price performance of an underlying asset at a fraction of the underlying asset price. Currently, the available underlying assets include both local and foreign single stocks and benchmark indices. There are two kinds of warrants:

Put Warrant (Bearish View)

Put warrant gives you an option to buy the underlying security at a fixed strike price on a pre-determined expiry date. If the underlying security rises in value by expiration, you earn the difference between the market price of the underlying at expiry and the fixed strike price. You can also sell your warrant before expiry to lock in your returns.





Profit/Loss Per warrant

$

Price of stock

$

Breakeven Price

Exercise Price

Max Loss

Potential Profit

Call Warrant (Bullish View)

Call warrant works in reverse giving you an option to sell the underlying security at a fixed strike price on a predetermined expiry date. So if the underlying security drops in price, you earn the difference between the market price of the underlying at expiry and the fixed strike price. You can also sell your warrant before expiry to lock in your returns.






Profit/Loss Per warrant

$

Price of stock

$

Breakeven Price

Exercise Price

Max Loss

Potential Profit

Find out more about structured warrants

Daily Leverage Certificates

 

What are Daily Leverage Certificates (DLCs)?

DLCs allow investors to gain fixed leveraged exposure to underlying assets such as market indices and single stocks. Investors with a bullish view can choose to buy a long DLC to benefit from rising prices, or a short DLC to benefit from falling prices.

Bullish View

 

Consider buying the long DLC to benefit from rising prices

Bearish View

 

Consider buying the short DLC to benefit from failing prices

DLCs offer investors fixed leverage of up to 7 times of the daily performance of the underlying asset (e.g. market indices or single stocks).

If the underlying asset increases 1% today

Value of the Long DLC will rise by 7% while the value of the Short DLC will fall by 7%

+7%



If the underlying assets decreases 1% today

Value of the Long DLC will fall by 7% while the value of the Short DLC will rise by 7%

-7%



If the underlying asset moves in a direction against you, your losses will also by amplified by 7 times.

Find out more about Daily Leverage Certificates

Structured warrants and Daily Leverage Certificates are designed for investors with a high risk appetite and sufficient understanding of the product hence, it is important for you to SIP-qualified. Find out how you can qualify to trade SIPs ▸

Content contributed by: Brandon Leu, SGX Academy Trainer

Mr Brandon Leu’s portfolio of clients includes corporate, trusts and high net-worth individuals. Brandon joined the banking and finance industry in 2005 and he has been with UOB Kay Hian since 2013. Brandon conducts regular trading and technical analysis seminars at SGX, UOB Kay Hian, Bloomberg and other public institutions such as SMU and NUSS in Singapore.

Disclaimer:

This document is not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Singapore Exchange Limited and/or its affiliates to any registration or licensing requirement. This document is not an offer or solicitation to buy or sell, nor financial advice or recommendation for any investment product. This document has been published for general circulation only. It does not address the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a financial adviser regarding the suitability of any investment product before investing or adopting any investment strategies. Please note that the general disclaimers and jurisdiction specific disclaimers found on SGX’s website at http://www.sgx.com/terms-use are also incorporated into and applicable to this document.

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