Leverage Shares ETPs come equipped with an “airbag mechanism” built into
the administration of every product. This feature is triggered when the
underlying stock loses more than x% (in long leveraged ETPs) or appreciates
by more than x% (in short ETPs) during a trading session compared to
previous day’s close.
The air bag mechanism is designed to limit the impact of losses on the
value of Short and Leveraged (S&L) ETPs during extreme market moves.
S&L ETPs are designed in a way that investors cannot lose more than
what they invest and curtail losses during adverse and volatile moves. This
is achieved by a mechanism known as the air bag – which is a safety
mechanism that is built into each product.
The air bag activates if Leverage Shares ETPs lose 50% of its value in a
day. The precise level of the Air Bag is different for each ETP. For
instance, a product with a leverage factor of 5x long would trigger the air
bag mechanism if the underlying instrument declines 10%, for a product with
a leverage factor 3x, the air bag would be activated if the underlying
declines 16.66%, and for an ETP with a leverage factor of 2x the underlying
needs to decline 25%, etc.
The respective trigger values are as follows:
Therefore, if an investor purchases an ETP with 5x leverage and the
underlying moves unfavourably by 20% during the trading day, the investor
is protected as the ETP won’t lose its entire value. Or, if the underlying
moves unfavourably by 25% in a day, it does not mean the investor would
lose its entire investment and owe an extra 25%. However, investors using
CFDs or Spread bets would be liable for the entire loss incurred.
The air bag mechanism is triggered when the underlying asset reaches the
stated air bag trigger level. Whenever the air bag gets activated, trading
halts, and a 15-minute observation period begins. During the observation
period the lowest level of the underlying asset for a long ETP, or the
highest level for a short ETP is recorded. When trading resumes, the ETP is
rebalanced, and it starts trading as if it were a new trading day. From
then on, the performance of the product’s price will depend on how much the
underlying asset rises or falls from the observed level. The airbag is
beneficial if the underlying asset moves further against the investor and
helps reduce subsequent losses as they are applied to the new, lower
product price. However, after an air bag event subsequent gains will also
be reduced, and investors may not fully benefit from the rebound.
*However, an overnight collapse in the underlying stock could make the ETP
worthless, as the stop-loss mechanism cannot be triggered outside of ETP
trading hours. The most a client can lose is the full value of his/her
investment (in fact, a bit less than that as there is a principal amount
guaranteed, which varies per product).
Let’s consider, the price of a hypothetical underlying stock closes at
$100, and an investor owns +3x Long ETPs with built in airbag and +3x
Long ETPs without airbag. The next day the underlying stock falls
sharply lower throughout the day and triggers the air bag mechanism.
After the airbag is activated, the underlying stock reverses course and
trades higher.
Let’s consider, the price of a hypothetical underlying stock closes at
$100, and an investor owns +3x Long ETPs with built in airbag and +3x
Long ETPs without airbag. The next day the underlying stock falls
sharply lower throughout the day and triggers the air bag mechanism.
After the airbag is activated, the underlying stock continues to trade
lower.
Market Insights
Education
Basket Builder
About
Why us
FAQs
Equities
Alternatives
Custom Baskets
Leverage & Inverse ETPs
Stock Tracker ETPs
All Products
