Daily Leverage Certificates (DLCs) are financial instruments that replicate the underlying index linearly with a constant leverage effect (e.g. x3, x5 or x7), and is issued under the Structured Warrants Framework. DLCs are classified as high risk and high complexity products. Retail investors are required to be Specified Investment Products (SIPs) qualified in order to trade DLCs.
1) Easy to Understand
Daily Leverage Certificates (DLCs) performance can be simply calculated by
Underlying index performance
Leverage factor applied
Cost & fess deducted
Unlike other instruments like Structured Warrants, DLCs track the performance of its underlying index linearly and does not change due to time, expiry of the contract, change in volatility of the underlying index etc.
2) Go Long or Go Short With Leverage
Daily Leverage Certificates (DLCs) amplifies returns, in both rising and falling markets.
3) Limited Losses
Losses incurred on DLC positions are limited to the initial capital invested.
4) Compounded Returns
DLCs are structured based on the daily performance of their underlying index, and are as such intended to be traded intraday. The price performance of the underlying index and DLC are reset at the end of each trading day. This means that the performances each day are locked in and subsequent returns are based on what was achieved the day before. This process is referred to as compounding.
5) Air Bag Mechanism
The Air Bag mechanism is designed to slow down the rate of loss on the index during extreme market conditions. The Air Bag comes into effect at a predetermined drop in the underlying index. This level varies depending on the leverage ratio, as well as the nature of the underlying index. If this occurs, the Air Bag triggers an intraday re-set of the underlying index. The reset takes place over a period of 30mins. Following the reset, the performance of the underlying index is based on the new observed level. This is designed to reduce the impact of any subsequent fall.
The Air Bag Mechanism will reduce the impact if the index falls, but will also maintain a reduced exposure to the index in the event the index starts to rise after the Air Bag Mechanism is triggered, thereby reducing its ability to recoup losses.
Available DLCs as of the launch on 17 July 2017
DLCs are designed for active investors who have financial knowledge and experience in trading leverage products and willing to take higher risk. It is designed for sophisticated investors who are looking for the potential to make enhanced returns from the daily benchmark indices.
All investors need to be SIP qualified with full understanding on the products in order to trade DLCs.
You can trade DLCs the same way you buy and sell shares and other securities listed on SGX-ST. Simply execute the trades through your broker. No separate account is needed for the trading of different securities. Trades are settled on the same basis as share transactions - on the third business day after the trade date.
Leverage is a "double-edged" sword. In addition to magnifying gains, DLCs can also magnify losses when the value of the underlying index moves against the DLCs position. For instance, a fall in the price of the underlying index can lead to a larger percentage loss in the value of the long DLCs.
In the event that a DLC or underlying index is denominated in a currency other than SGD, you will be subject to exchange rate fluctuations that may have an adverse effect on the value, price or return of the DLC.
Similar to other investments in the securities market, the market value of a DLC is susceptible to events that affect its demand and supply. Hence, the market value of your investment will fluctuate accordingly.
Liquidity risk occurs when a warrant holder is unable to sell his DLCs for a reasonable price in the market. This is due to insufficient buy orders, which affects the market price of the DLCs.
Please click here for more information on Daily Leverage Certificates.