Certificate: Discounted Certificate

As compared with investments in shares or with index certificates, investments in discounted certificates represent much smaller risk. This is because the investor buys the discounted certificate with a certain discount and this discount represents risk protection. Hence the name discounted certificates. Discounted certificates make it possible to earn profit on stagnating, slightly rising or even declining markets. For the risk protection, the investor must give up a certain part of potential profit that would be achieved with a significant increase in the rate of the underlying asset. Only a certain maximum yield can be achieved, which is the fee for the relatively considerable risk protection. The limit of this maximum yield is called a cap. Above this level, the investor does not participate in the yields.