What are Daily Leverage Certificates (DLCs)?

It will be easier to explain the term in reverse order; ‘certificates’, ‘leverage’ and ‘daily’.

Certificates

Certificates are a class of securitised financial instruments.

They are financial derivatives that allow investors to conveniently gain exposure to an underlying asset.

They are bi-directional, and investors can use certificates to express both long and short ideas.

Finally, certificates are traded on the stock exchange and hence can be bought and sold easily through a regular stock brokerage account.

Leverage

DLCs are leverage products.

For the initial launch, the maximum leverage would be capped at 5x.

What does that mean for an investor? How volatile could the returns be?

Based on the price movements of the MSCI Singapore Index (MSCI Singapore) and the Hang Seng Index (HSI) in 2016, the 5x DLCs daily returns will range between -15% to +15% for the MSCI Singapore and -20% to …