For hedging and diversifying your portfolio, DenizBank AG Priority Banking provides you access to global markets with tailored prices for your derivative and product demands.
Derivative products are products of which the return is based on the return performance of an underlying asset (such as security, foreign currency, interest) and which is derived from the return of the underlying asset.
The most important feature in derivative products is that “maturity” concept is included in transactions. In other terms, with derivative transactions, an agreement is made today for a transaction that will be conducted in the future. Derivative products can be used by investors who want to avoid possible market fluctuations in the future and who aim to generate additional return with these fluctuations by taking a certain amount of risk.
Forward, Option, Swap are the main derivative products.
Forward (buy/sell transaction) refers to the agreements related to buying or selling specific amount of foreign currency in a forward maturity from a price that is defined today. In the forward agreements, both parties have the liability to conduct transaction in terms of the price and amount defined in the agreement, irrespective of the spot rate of the asset subject to transaction in the maturity.
Forward transactions are products that can be used for protection against the negative effects of fluctuations in the asset prices and for generating return from these fluctuations.
Options are agreements that grant the option buyer the right to buy or sell a certain quantity of assets, economic or financial indicators, money or capital market instruments, commodities or currencies at a certain price in return for payment of a premium, all of which form the basis for the option. However, these do not oblige the buyer but the option seller to sell if the buyer demands this within a certain term (European options). With this structure, the options can be compared to an insurance transaction by the party that buys the right by paying premiums.
There are mainly 2 option types;
Call Option: Call option is a type of option agreement which gives the party buying the option agreement the right to buy a certain quantity of the asset, which is specified in the agreement, at a certain time or up to a certain time for a defined price.
Put Option: Put option is a type of option agreement which gives the party buying the option agreement the right to sell a certain amount of the asset, which is specified in the agreement, at a certain time or up to a certain time for a defined price.
Swaps are agreements of forward transactions which are made for exchanging a currency with another currency and repayment of the exchanged principals at the end of a specific period. In FX swap transactions, the amount exchanged in the beginning of the transaction is repaid on the maturity date which is defined in the agreement in terms of the amount calculated with exchange/parity which is again defined in the agreement. In other words FX swap is formed as a combination of spot FX transaction conducted on the date of agreement and forward transaction in the opposite direction of the initial transaction which was agreed to be conducted on the maturity date. If the initial transaction is buying spot, a forward sales agreement is made on the maturity date, if the initial transaction is selling spot, a forward purchase agreement is made on the maturity date.
Risk note
It is expressly pointed out that financial instruments and investments sometimes involve considerable risks. Please note that investments on the capital market may be subject to market-related price fluctuations, both upwards and downwards and can also lead to (total) capital losses.
When trading in derivatives, particular attention must be paid to foreign currency risk: The return or performance of a foreign currency transaction depends not only on the local return of the financial instrument on the foreign market, but also heavily on the development of the exchange rate of the foreign currency in relation to the investor's base currency (e.g. euro). A change in the exchange rate can therefore increase or decrease the return and value of the investment. Foreign exchange risk can both increase and decrease the return or performance of a financial instrument (and even lead to the total loss of capital).
For further information on possible risks, please refer to DenizBank’s Risk Disclosures in Securities Transactions to be found
here.
Marketing communication
This information is provided by DenizBank AG for non-binding information purposes only and constitutes neither a recommendation nor an offer or invitation to make an offer. The information contained in this document is of a general nature and does not take into account the individual needs and circumstances of potential investors. Investments may give rise to tax obligations that depend on the customer's personal circumstances and may change retroactively or in the future. This information can replace neither individual investment advice (which is not offered by DenizBank AG) nor advice from a tax advisor. Errors and misprints reserved. (Advertising, as at 03/2024)
The derivatives offered by DenizBank AG and the associated Key Information Documents for PRIIPs are available
here.
For further details about Derivative Transactions, please contact our Priority Banking Department via
Email
