Trading Knock-Out Certificates - Explanation with Examples
A rather unknown trading instrument among trading beginners or laymen are knock-out certificates. What sounds like a boxing match is actually a trading instrument. However, it is rightly called a knock-out because it is a so-called turbo certificate. In this article I will tell you what is hidden behind a knock-out certificate and how to trade them.
What are knock-out certificates?
To understand knock-out certificates, the term must first be defined. If the first two words are left out, it is initially a typical certificate. A certificate is a financial product that represents a debt security. This bond has derivative components. This means that its own return depends on the performance of other financial products. With the structured financial product, an investor can therefore participate in both the profit and loss of a financial product.
When trading knock-out certificates, investors are therefore also betting on a price trend. The price can either rise or fall. The difference to conventional certificates, however, is that a knock-out certificate has a leverage effect. Thanks to the leverage, it is possible to achieve an above-average return even with a small capital investment. When trading knock-out certificates, investors usually bet on the price of a share or the performance of an index.
Due to the leverage effect, knock-out certificates are often also called sprinters or turbo certificates. But how is it possible to identify knock-out products using log in Exness area? I will show you.
Knock Out certificates differ from normal certificates in many ways. Leverage is always a suitable indication that they are Knock Out products. Leverage can always be seen in the rise or fall of the price. If we assume that a leverage of 3 applies, then if the price of a share rises or falls by 1%, the certificate would rise or fall by 3%. In this way, the price development of an underlying asset is therefore decisive for the profit or total loss of the capital invested in a trade.
Excursus: What are leverage products?
In order to understand the leverage of knock-out certificates, it should be briefly clarified what exactly leverage products are. Leveraged products include warrants and knock-out certificates. Both have in common that based on the current price, bets are placed on falling prices or rising prices. A leverage is always present, which usually corresponds to a ratio of 1:2, but can also be defined differently depending on the trading conditions. The higher the leverage, the greater the profit an investor can achieve. However, the capital investment does represent a risk.
It should therefore be noted that the higher the leverage, the higher the risk. Both high profits and high losses can be made in this way.