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Leveraged products

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Leveraged products

Are you new to investing? Read Start investing step 1 and step 2 first.

Turbos, sprinters, speeders are names for leveraged products. They are very similar but are offered at different institutions. For example, ING has the sprinters and ABN Amro has the Turbos. Leveraged products allow you to trade stocks, indices, commodities, currencies or bonds. You trade with leverage. With this you can achieve big gains with a relatively small investment. The risk is therefor also higher. You can lose your entire investment. With leveraged products you can predict whether the price of a stock (or bond etc.) will go up or down. Do you think a product is going down in value? Then you go short. Do you think a product is going up in value? Then you go long.

It works something like this:

Imagine that a share now costs 14 euros. You think it’s going to go up. You place a long bet. The issuing institution (for example the bank or broker) lends you 12 euros per share. You pay interest on that. Your own investment is 2 euros per share. If the share rises from 14 to 15 euros, the profit on the share is normally 7%. In this example, you made 3 euros from 2 euros. The profit on the stock is 7% but your profit is 50%.

You can also be wrong. The share goes down from 14 to 13 euros. Your 2 euros is then only worth 1 euro. You lose 50%. Will the share drop to 12 euros? Then you have lost your entire investment. That’s where the stop loss lies. The share is automatically sold at the stop loss. This way you can never lose more than your initial investment plus the interest on your loan.

The greater the leverage, the greater the profit you can achieve, but also the loss and therefore the risk. The leverage indicates how many percent it changes compared to 1% change on the product. Does your product increase 1% and is your leverage 5? Then your profit increases by 5%.

Benefits of leveraged products include:

– You can make a lot of profit with relatively little investment.

– You have a fixed maximum loss.

– You can bet on both falling and / or rising positions.

Disadvantages of leveraged products include:

– You pay relatively high transaction costs.

– You pay interest.

– The risk of losing your investment is high.

You can imagine that this is not suitable for the beginner investor. Are you reading this for the first time or do you find it difficult? Then don’t do it. This is not suitable for the novice investor! To invest in leveraged products, you need to follow the financial news carefully and predict what a particular product will do. Expect that you will spend a lot of time on this. If you are wrong, you lose a lot. I do not invest in leveraged products myself and do not recommend it. The information on this page is not intended as investment advice.

Do you want to read more? Have a look at the following websites:

https://www.ingsprinters.nl/videos

https://www.degiro.nl/leren-beleggen/beleggen-in-hefboomproducten

https://www.lynx.nl/kennis/artikelen/hefboomproducten-sprinters-turbos-en-speeders/

https://www.abnamro.nl/nl/prive/beleggen/beleggers-academy/gestructuren-producten.html

Until next time!

Elske

I am not a financial advisor, and therefore not your financial advisor. I am not a financial professional. This blog is for entertainment purposes only.

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