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How to invest?

Investor profile

Perhaps the first decision to be made by any saver about to make an investment is exactly how much risk they are willing to assume or, in other words, the level of profit/loss to apply to their investment. The risk/return profile of each individual depends, among other factors, on age, psychological make-up, the time horizon over which the investment is to be made and the portion of income available for saving.

Discipline when investing in warrants and other exchange-traded products is essential if positions are to be taken. Objectives and levels of risk you are prepared to assume must be determined, and also quantified and mitigated. Investors must not overlook that they are investing in a derivative with significant leverage.


Choosing your product

Starting from this analysis, and preferably with the assistance of a professional, the investor must next decide which products will make up their portfolio and in which proportion, so the investment fits their particular profile.

Some specialists recommend that investments in warrants and other products of this nature should not exceed 10% of an investor’s equities portfolio. You must not forget that warrants have a risk profile where rewards are limitless but losses can also be 100%.

Moreover, with a 10% investment, a much higher nominal position can be taken thanks to the multiplier effect of some of these products, whereby a higher nominal position is taken with a smaller investment.

One of the guiding principles for choosing your portfolio products and securities is diversification, i.e. not concentrating your investment in just one or a few securities.

Another concern is the liquidity of the investment, since not all products or securities can be readily disposed of when the investor wishes. The liquidity of exchange-traded products is dependent on the liquidity of the underlying assets.

In the case of exchange-traded products, the market maker assumes a commitment to ensure liquidity, acting as a counterparty to enable active trading of these products. Sociedad de Bolsas Operating Instructions 39/2003 and 77/2012 stipulate the parameters for the presence of specialists or market makers in exchange-traded products. These establish maximum price ranges for each product.

In contrast to shares, the price of exchange-traded products does not depend directly on supply and demand, but is set by different factors used to calculate their price, e.g. the price of the underlying asset or, depending on the type of exchange-traded product, time or volatility. 

Another key point on the investor’s basic check-list should be the tax treatment of the investment.


Choosing your intermediary

web warrantsInvestment decisions are not only about what, when and how much to invest but also about selecting and using the most suitable channel.

You can buy and sell exchange-traded products on the stock market as quickly and easily as shares.

You need an intermediary (bank, savings bank, securities agency or company, or on-line broker) to trade warrants and other exchange-traded products as it is not possible to trade warrants directly. Before investing in these products for the first time, you must sign a suitability and appropriateness test statement as per the Markets in Financial Instruments Directive (MiFID) available from your financial intermediary or broker, to confirm that you have been informed of the risks associated with trading in exchange-traded products.

Some brokers enable trades to be placed online and over the phone.

To trade these products it is necessary to open a securities account with one of these financial intermediaries. If an investor already has an open account, this can also be used for moving warrants and other exchange-traded products and the cash used in market transactions.

Once a securities account has been opened and sufficient funds advanced, the client can issue the relevant purchase and sale orders.


Investment costs

As with buying and selling shares in the Spanish market, investors must bear three types of costs when trading exchange-traded products: the fees charged by the intermediary or intermediaries used by the investor, Spanish stock market trading fees and the settlement fees of IBERCLEAR. This is on top of the administration or custody fees payable to the securities account administrator.

Pursuant to prevailing legislation, all intermediaries must publish their fees and inform the CNMV thereof. This way, investors are aware from the start of what fees they will be charged for trading on the Spanish stock market.


Tracking investments

Plentiful and timely information to the investor public is an essential prerequisite for market transparency.

The performance and prices of these products can be tracked on our website as well as via the regular stock market information channels such as Infobolsa, and specialist platforms, websites and media, etc.

Highly detailed information with a large amount of educational and informative content is available on the websites of the issuers of these products, to provide you with all the possible support needed to make informed and appropriate investment decisions.

These issuers also furnish investors with tools to help them understand how these products work, such as information on sensitivities, analysis, price calculations, etc.


Risk warning

Before investing in exchange-traded products, you must make your own assessment of the risk from a legal, tax and accounting perspective, without relying solely on the information provided by the issuer. It is recommended that you read the Prospectus and "Final Terms" as well as the "Risk Factors" section in the Prospectus before making an investment.

Investing in exchange-traded products entails constantly monitoring your position, as it is possible that an investor could lose their entire investment.



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