Investors who want to incorporate leveraged products into their portfolios need not only a certain amount of courage but also a solid understanding of how these instruments are structured. One key factor is the financing cost, which can vary significantly between issuers. Attention should also be paid to trading and customer service to ensure not only fair pricing but also that investors feel well-supported. An independent analysis has confirmed that Leonteq plays a leading role in this area.<\/p>\n
One percent up or down? For traditional investors, such fluctuations are often barely noticeable and rarely significant. But for those investing in leveraged products, this can mean the difference between profit and loss. Investors who trade in Warrants with Knock-Out or Mini-Futures intentionally amplify market movements. The idea is as simple as it is effective: with only a fraction of the capital, one can participate in the full price development of an underlying asset \u2014 often not just one-to-one, but with a multiple of the movement. \u201cSmall investment, big gain\u201d is the motto. However, this also comes with a caveat: the risk of a total loss is always present with this type of speculation.<\/p>\n
Leverage Products are no longer a niche phenomenon. More and more investors want to take advantage of market volatility and benefit from price movements \u2014 whether upward or downward. Leonteq now offers investors a broad and effective range of Leverage Products. Anyone looking to trade Mini-Futures or Warrants with Knock-Out should take a closer look at these instruments, as leverage does not come free: financing costs play a central role.<\/p>\n
The good news first: Shortly after launching its Leverage Products, Leonteq scored excellently in an independent evaluation of financing costs among issuers in Switzerland. But first, let\u2019s clarify what financing costs actually are. Both Mini-Futures and Warrants with Knock-Out involve the issuer providing the investor with a loan to maintain the market position. This form of leverage results in ongoing costs, known as financing costs. They arise because a portion of the underlying asset is essentially \u201cpre-financed\u201d by the issuer. For products with no maturity date, these costs are calculated daily and incorporated into the price of the leveraged product.<\/p>\n
In the case of Mini-Futures, financing costs are accounted for through the daily adjustment of the strike price, also known as the financing level. In addition, many issuers adjust the stop-loss level daily by the same amount to maintain a constant percentage distance between the strike price and the stop-loss level. Some issuers, however, only adjust the stop-loss level monthly \u2014 or at other intervals \u2014 by the accumulated amount since the last adjustment, thereby restoring the original distance between the strike and the stop-loss level. The stop-loss level therefore changes over time, which means the risk of a stop-loss event can increase even if the underlying asset price remains unchanged. For Warrants with Knock-Out Open-End, the strike price and thus the Knock-Out threshold are also adjusted daily to reflect financing costs in the product price. As a result, even when the underlying asset remains at a constant level, a decrease in the value of the Leverage Product can occur over longer holding periods. The ongoing financing costs lead to a gradual value erosion in sideways markets for products without a maturity date. The longer a Leverage Product is held, the more these costs weigh on performance. Investors should therefore be aware of the implicit financing and its effects on the product\u2019s value.<\/p>\n
An example can help illustrate the impact financing costs can have on the value of a Mini-Future when the underlying asset\u2019s price remains constant.<\/p>\n