A Guide to Trading Daily Leverage Certificates (DLC)

What is Daily Leveraged Certificates

– A leveraged product that offers investors 3, 5 or 7 times the daily performance of the underlying asset, whether it is a rising or falling market

– e.g if the underlying moves 1% from its closing price the previous day, the value of the 5x DLC will move by 5%

– designed to be traded over short periods of time, usually traded on an intra-day basis

– long and short DLC available to trade both rising and falling markets

– will never lose more than your initial investment


How to Trade DLC


– classified as Specified Investment Product (SIP)
– be Specified Investment Products (SIP) qualified in order to trade DLC 

– through your broker (e.g OCBC/ Interactive Broker) 

iOCBC
 – request your broker to add in SIP trading permissions once you have cleared the SIP test (if eligible)
 – select “Warrants” or search the particular instrument in search bar 

iOCBC Daily Leveraged Certificates
 – request trading permission via Account Management –> Settings –> Account Settings –> Configure icon on Trading Permissions –> Select Singapore
 – Limitation (at the time of writing): only available on TWS platform (Desktop). IBKR Mobile App trading is not available. Hence, it inconveniences those working adults who are unable to trade during office hours on their mobile. 

Where to find the Full List of DLC available to trade

SGX –> Securities –> Prices 

SGX Daily Leveraged Certificates

How to Read the DLC Code

How to read Daily Leveraged Certificate



What Happens at Expiry

– maximum life of 3 years
– at expiry the final exercised value of the DLC is calculated and automatically paid to investors

Cost and Fees

iOCBC


iOCBC trading fee
iOCBC Trading fee




Interactive Brokers

Cheaper to trade via Interactive Brokers’s TWS platform. Feasible for those with access to desktop during trading hours.

Comparison: Cheaper to trade via IB TWS and their fees are lower 

Interactive Brokers Trading Fee
Interactive Brokers Trading Fee




Who is it suitable for

– investors who are willing to accept the risk of substantial losses up to the initial investment amount 


Air Bag Mechanism

– Air bag mechanism is built in to slow the rate of loss in the value of DLC’s in extreme market conditions

Trigger Points
– 10% movement in the opposite direction for a 7x DLC and 5x DLC
– 20% movement in the opposite direction for a 3x DLC 
– based on the closing price of the underlying index in the previous trading day

– If the underlying index moves by the pre-determined percentage (e.g. 10%) during the trading day of the DLC, the airbag mechanism triggers an intraday re-set
– The re-set takes place over a 30 minute period where trading of the DLC will be suspended
– Following the re-set, the performance of the DLC is based on the New Observed Level which is determined as the lowest value of the underlying Index for the Long DLC (respectively the highest value for the Short DLC) during the 15 minutes period after the airbag trigger. 


How to Use DLC

– to take advantage of daily market news or expecting economic events

My Opinion on this Product

As the name suggests, the leverage built into this product can result in huge losses if action is not taken at the appropriate time. This instrument is usually traded on an intra-day basis given the nature of the product.

Also, given the relatively high cost of trading via iOCBC, I would have chosen to trade via the Interactive Brokers platform. Which is unfortunately unavailable on its IBKR Mobile App. In time to come if this option is available, I may consider getting my hands on the DLC.

Lastly, if you are a working adult with not much time during the day (i.e trading hours) to monitor the prices and volume, I suggest you to not touch this product. Stick to long equities.

Sources:
SGX POEMS UTradeSocGen