Daily Leverage Certificates (DLCs) are exchange-traded financial products that enable investors to take a leveraged exposure to an underlying asset, such as an equity index or a single stock (you may refer the full lists of DLCs here). On each trading day, the DLCs would replicate the performance of the underlying asset versus its previous day closing level with a fixed leverage factor of up to 7x.
In case you have not realized, DLC is essentially a leverage product, designed for short term trading, which will allow investors to build and magnify the exposure of their positions in key Asian indices and individual stocks such as DBS, Tencent, BYD, etc. There are both Daily Long and Daily Short DLCs which allow investors to trade both directions of the market.
However, unlike most leverage products out there in the market, the one thing that stands out for DLCs is that they are listed on the cash market of SGX and tradable on any regular stock brokerage platform , and because of that, there is no risk of a margin call. This could suit the appetite of some investors who would like to build or hedge their positions with the assurance that their maximum loss is limited to their invested amount even if the performance of the underlying stock or index moves sharply against them.
In addition to that, there is also very little capital outlay needed to take on a position as compared to the minimum lot requirement to purchase directly especially for HK stocks. Lower capital outlay also means less commission and exchange fees.
Let me illustrate that with an example.
Assume as an investor you already have positions in Tencent Holdings that you would like to hold for long term.
The current market is volatile and sentiments are not exactly high, and with earnings announcement coming up, you think this might drive down the share price further.
Aside from simply just selling your entire positions in the open market, you can actually buy a Daily Short Tencent 5xShortSG231214 (DMIW) which will allow you to hedge your positions using a small amount of capital with the 5x leverage.
Assuming Tencent reported a poor earnings and share price is down by 4.5%, this would allow you to profit by approximately ~ 4.5% x 5 = 23% through the DLC that you purchased. This would help to offset or partially offset the risks and losses for the overall positions that you are holding long term for Tencent Holdings.
Say for example you think the earnings would instead beat estimates and would like to increase your exposure in the short term. You can buy the Daily Long – Tencent 5xLongSG220808 (DDLW) using a smaller amount of capital rather than buy the Tencent stock to gain that extra exposure (bear in mind the minimum investment amount for Tencent stock in HKD is ~S$7,500 due to lot size). Furthermore, all DLCs are priced in SGD hence you do not have to go through the inconvenience of changing your SGD to HKD.
You can use DLCs to complement your trading strategies and work them to your favor and there is no better opportunity than to implement them in the next upcoming simulation event.
The SG Active Trading Tournament 2021 is back again this year as one of the most anticipated trading tournament that is organized jointly by Investing Note and Societe Generale, as well as SGX that allows traders to participate in the trading of DLCs.
This year is particularly exciting and one which I have a lot of anticipation to myself because the market has been very volatile which add flavors to the competition itself.
The entire tournament period runs for about 1.5 months from the 13th September 2021 to the 22nd October 2021. The details of the schedule are further appended into:
- Elimination Round: 13th September 2021 – 1st October 2021
- Final Round: 11th October 2021 – 22nd October 2021
I actually considered myself faring in the last 3 simulation tournaments that I attended – scoring the top 50 ranking for the year in 2018 and 2020. Do bear in mind that for every events, we have close to 2000 participants fighting for the top price and some of these people are veterans and professional traders so I didn’t actually fare too badly!
- 2018 – Rank number 2 + $100 daily winner voucher
- 2019 – Rank number 246 + $100 daily winner voucher
- 2020 – Rank number 28 + $100 daily winner voucher
So do join the tournament this year by clicking here. Registration is free and there are various prizes to be won and I’ll see you at the podium!
Disclaimer: This post is written in partnership with InvestingNote – SG’s first and largest community for investors.