Tutorial: Outperformance-certificates


What are outperformance certificates?

Outperformance certificates allow the investor to participate at disproportionately higher rates from the price increases of an underlying instrument, with the participation rate of the certificate being in excess of 100%. This leverage increases your chances of higher returns relative to the direct investment in the underlying instrument. The disproportionate chance is not associated with higher risk. Should the price of the underlying instrument fall, outperformance certificates reflect the performance of the underlying share identically at the end of maturity.

How do outperformance certificates work?

A strike price roughly at the same level as the price of the underlying is set at the issue of the outperformance certificate. At the end of maturity, the current price of the underlying is compared with the strike price. If the price of the underlying exceeds the strike price, the investor receives the strike price of the certificate plus the price increase multiplied by the participation rate. If the price of the underlying ends up below the strike price, the investor receives the current price of the underlying share. Given that the outperformance mechanism is mainly funded by dividend payments, they are not paid out to the investor.

Your benefits

Outperformance certificates offer disproportionately high chances of making a profit. The leverage allows you to participate in the price increase of an underlying instrument without having to assume higher degrees of risk than those associated with the direct investment in the underlying. This means that outperformance certificates offer investors who expect rising prices an interesting investment opportunity.

Your advantages

  • You have better chances of making higher profits because of the outperformance mechanism than in the case of a direct investment in the underlying instrument.
  • You do not assume any higher risk than the one associated with buying the underlying.
  • In the case of rising markets, your potential return is unlimited.

Details you should be aware of

  • If the underlying instrument falls, holding an outperformance certificate will result in losses.
  • Between issue date and maturity, price fluctuations are possible, which means that the sale of the outperformance certificates prior to maturity may result in a loss.

How do outperformance certificates react to…

… rising markets?
If the price of the underlying instrument rises, the outperformance certificate increases at a disproportionately higher rate on the basis of the participation rate.

… stable markets?
If the price of the underlying instrument does not change, the value of the outperformance certificate remains constant as well.

… falling markets?
In falling markets, the outperformance certificate reflects the price movements of the underlying instrument proportionally. If the price of the underlying falls, so does the value of the certificate.

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