A call is the right to purchase a certain amount of shares, bonds, indices, commodities or currencies under prearranged conditions during the term from a contractual partner known as the option writer. There is no obligation to exercise the option right. If a call is not exercised, it simply expires without value. For the buyer of such an option right, the risk of loss on their initial capital investment is limited.
Capped warrants are warrants with a limited maximum profit. The investor only participates in price developments up to a certain market price set out in the warrant’s terms and conditions. The maximum payment is limited to the difference between the strike and the cap.
Cash settlement is the payment of money as opposed to securities. For covered warrants it is no longer typical for payment to be in the form of shares. Instead, the bank pays the warrant holder the difference between the strike and the current market price. Cash settlement is also used to fulfil contractual obligations under options or futures contracts if physical delivery of the underlying is not planned.
Cash settlement price
The cash settlement price is determined once a day, usually at midday. In practice, the term is used synonymously with that of single cash price. Primarily stocks which are not admitted to continuous trading due to their liquidity restraints are traded at the cash settlement price.
A certificate certifies an investor’s participation in the performance of other securities and financial products. The holder of the certificate participates, for example, directly in the performance of a specified index (index certificate) or a specially compiled equity basket (basket certificate).
A chart is a graphical depiction of price movements over a certain period. Changes in prices can be illustrated over various intervals such as years, months, weeks, days, hours, minutes, seconds or “ticks”. The tick charts show each individual price determination. The vertical Y axis shows the price movements on either a linear or logarithmic scale. The price development can be displayed as a line graph, bar chart or candlestick chart.
Chart analysis is another method of predicting prices, alongside fundamental analysis. Analysts use charts of past price and turnover development for a particular capital market product in order to generate a forecast of its future development. Technical analysis assumes that price developments reflect opinions, news and fundamental data, and is therefore
considerably more accurate than fundamental analysis.
Chart patterns based on past developments are used to forecast a share’s future price movements. Frequently occurring patterns include, e. g. head and shoulders, triangle, double top and double bottom, one and two day reversals, flags, pennants and cup and handle.
Unlimited order to purchase securities at the lowest price. The purchase takes place on the best terms available on the purchase date.
Classical warrants are issued by companies in conjunction with warrant-linked bonds. They entitle the holder to subscribe to primary shares of the same issuer. The issuing company covers the obligations to deliver the primary shares arising from the equity warrants with contingent capital. Exercising the warrant and thus the utilisation of the contingent capital increases the number of outstanding shares and thus the stock corporation’s capital. The naked warrant represents a new form of equity warrant.
The clean price is the current price of a bond minus any interest that has accrued (antonym “dirty price”).
Clearing means the netting and settlement of the claims, liabilities and delivery obligations of market participants in on-exchange and off-exchange transactions. This task is normally carried out by centralised institutions called clearing houses.
A clearing house is responsible for clearing and settlement and normally also acts as central custodian of securities. [The clearing process includes transmitting, matching and confirming trades. The data necessary for netting and settlement are also collected, e.g. payment method, place and time of delivery] For futures contracts the clearing house specifies the amount of collateral (margin) to be paid. The clearing house also functions as a counterparty
to trades, thereby guaranteeing the proper execution of trades as well as the settlement of the
The term closing can have several meanings. It describes the legal conclusion and entry into force of a contract on the financial market. It can also mean the specific transaction agreed in the contract. On the stock exchange, however, the term closing most commonly refers to the closing prices at the end of an exchange trading day. Finally, it may also mean the closing out (i. e. nullifying) of an open position on the derivatives market.
Commodities is an umbrella term for goods and raw materials traded on derivatives exchanges. They include precious and industrial metals, such as gold, silver and zinc, and so-called soft commodities: agricultural products such as coffee and sugar. Commodities are traded as futures and are bought and sold in contracts.
Contango is a term used in the commodity futures markets. It describes a situation in which the price of a futures contract is higher the longer its term. This type of term structure is caused among other things by storage costs that may be incurred by the deliverer before maturity of the contract. In the event of a contango situation, investors face roll losses if they “roll” an expiring future into a future with a longer maturity. This is because they must pay more for futures contracts with longer maturities than for contracts with shorter maturities. (antonym: “backwardation”)
See “Range warrant”.
A coupon is the part of a security that entitles the holder to payment of a dividend (dividend coupon) or interest (simple coupon). Coupon may also describe the nominal interest rate of a bond. The expression dates from the time when shares and bonds were physically printed and included coupons that the investor could clip off on the respective dividend or interest due dates and submit to the bank for payment. Investors who had submitted all their coupons could apply for a new sheet of coupons.
Covered warrants securitise the right to physically acquire shares, currencies or commodities. In the case of covered warrants, the bank holds the relevant quantity of the underlying, e. g. the respective number of company shares, in a depository account or on the trading book. These days, issuers have the right to execute cash settlement rather than delivery of the underlying shares. Issuers forego maintaining a cover pool and instead typically secure these positions with an counter-transaction on the derivatives market.
Credit default swap
Credit default swaps (CDS) are a means of hedging the risk of default. Investors pay an annual premium in order to protect themselves from default by a bond issuer.
A rating is an assessment of the likelihood that a debtor such as a bank, company or country will meet its obligations, e. g. to pay interest and repay its debt. Rating agencies use a systematic approach to assess credit ratings. The most well-known credit rating agencies are Standard & Poor’s, Moody’s and Fitch. They indicate creditworthiness using a code
Credit ratings help investors to judge the creditworthiness of the respective issuer. As the certificates may be debt instruments, the rating is an important factor in the investment decision.
The credit risk is the risk that a debtor’s solvency situation could deteriorate. Deterioration of debtor creditworthiness results in a corresponding discount on the price of the relevant securities. The debtor’s creditworthiness may deteriorate to such an extent during the term that it becomes insolvent or illiquid. In this event, interest and/or principal payments may not be made on time.
Credit risk is the risk that a debtor may be unable to meet his obligations to the creditor.
The credit spread is the yield premium received by investors holding bonds at risk of default compared to the yield they would receive if they held bonds with the best credit rating. The credit spread is the risk premium for taking on credit, spread and liquidity risks. They help investors to judge the creditworthiness of the respective issuer. As the certificates may be debt instruments, creditworthiness is an important factor in the investment decision. Credit spreads are expressed in basis points. These represent the insurance premium that the buyer of protection must pay for protection against default by the respective company. Such premiums may give more up-to-date and accurate information about an issuer’s creditworthiness than some credit ratings.