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Among the decisions to be made before entering a trade is the investment horizon. Ask yourself how long you can and want to do without the capital you have invested. Also ask yourself whether you are prepared to accept a long waiting period for high returns or whether you would prefer to make smaller gains in the shorter term. Shares can be invested for the short, medium and long term - anything from a few days to many years is possible.

Short-term trading is much more unpredictable than a long-term investment and for this reason is more suitable for experienced traders. In addition, there are different types of risk among investors. Which investment horizon is suitable for you also depends on which category you belong to. For short-term investments, for example, speculative shares in smaller companies that experience larger price swings are suitable. For a long-term investment, securities of large, established companies are more suitable.

Hedging a portfolio with put options

There are other ways to hedge a portfolio, but these are only recommended for advanced investors. For example, the portfolio can be hedged against price losses by buying a put option (OS). The put OS gains value if the shares lose value and vice versa.

Which instruments can private investors use to trade equity markets?

Investing and speculating in the stock market with is not exclusively possible with direct investments in shares. Derivative financial instruments such as warrants and certificates enable the use of large leverage effects on the one hand and targeted strategic investments on the other. The spectrum ranges from very simple products with capital requirements in the range of a few hundred euros to EUREX trading. An overview of the most important equity derivatives.

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Leverage certificates

Leverage certificates - also known as knock-out or turbo certificates - are issued by numerous banks. The legal presentation as a debt security is less relevant than the central feature of the products: They enable the investment in a share with financial leverage. The leverage effect enables the disproportionate participation in price gains of the share to which the certificate refers (underlying). This is realised by a knock-out level.

A roughly simplified example to illustrate this. A share is quoted at 100 €. A long turbo certificate with a knock-out level at € 90 costs € 10 - the price corresponds to the difference between the share price and the knock-out level. If the share price rises to € 110, the price of the certificate doubles to € 20. An increase in the share price by 10% thus leads to an increase in the certificate by 100%. This is due to the tenfold leverage effect. The price for this is a greater risk of loss: If the share price falls to or below € 90, the turbo certificate expires worthless.

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