Anyone looking for a suitable investment is sure to come across certificates and other securities. Before interested parties decide to invest capital in a certificate, they should, however, find out detailed information about this type of investment and ideally have an expert advisor at their side.
- In finance, a certificate is an investment in securities.
- Due to possible losses, certificates are primarily recommended to experienced investors.
- Certificates can be purchased through banks or online brokers.
What is a certificate?
Defined on digopaul, a certificate is a security. The buyer of a certificate invests in the market price development of certain financial products such as stocks or indices. For example, he can bet on falling or rising prices. If the price development follows the forecast, the value of the certificate increases. Investing in a certificate is only recommended for experienced investors, as they can better assess the development of the stock market. Because if the stock market develops differently than expected, a certificate threatens high financial losses. Investing in a financial certificate is therefore very risky.
With a certificate, investors cannot rely on a fixed interest rate, as is the case with other investments . Whether the investor makes a profit or a loss depends on how successful his investment forecast was. When investing in a certificate, the investor takes on the so-called issuer risk. Since Certificates are a type of bond issued by the issuing bank, investors risk losing their invested money if bankruptcy occurs.
Conceptual differentiation to certificates from other areas
So that a certificate as a financial product is not confused with other certificates, other common meanings of the term “certificate” are explained below:
- Certificates for Quality assurance: They are proof of the achievement of specified quality standards and can be used for both products and services. Everything that qualifies for this certificate acts according to the so-called ISO standards. The certificate thus guarantees the customer constant quality at all times. In this country, for example, the TÜV issues certificates of this kind.
- Climate certificates: A company has the option of acquiring a climate certificate to offset excessively high CO2 emissions. With the purchase you compensate for the excess of CO2 emissions, as the certificates conceal various projects that benefit the climate and the environment.
- Green electricity certificates: They provide information about where the electricity comes from and what it is made of. The Federal Environment Agency confirms the origin of official certificates. So-called RECS certificates (Renewable Energy Certificate System) also indicate how environmentally friendly an electricity tariff is. A tariff can receive other seals of approval such as “OK power” or “Green electricity label” if it meets the criteria of the respective association that awards the seal.
There are two ways in which an investor can obtain a certificate. On the one hand, it can be acquired through the company itself. On the other hand, the exchange offers the opportunity to buy corresponding certificates at the current price. Buying from a stationary bank is not advisable. Online banks or -Brokers often convince with significantly lower custody fees. AA deposit for securities at an online bank has the advantage that the investor can conduct all financial transactions at one institute – provided he chooses the bank he is at, for example owns current account or other investments.
A detailed preparation and observation of the respective financial product is essential for the purchase of a certificate in order to know all the circumstances and to be able to better assess the situation. In addition, it is advisable to calculate the returns or losses that can result from different market developments before buying.
Types of certificates
There is a wide range of investments in securities. It is therefore important to know exactly which system is suitable for you. The most common certificates include:
- Discount certificate: it already has a fixed term when it is purchased. The advantage of this certificate is that the investor can acquire it below the base value. In return, the profit margin of the certificate is usually very limited. With a so-called cap, a maximum amount for profits in the event of a price increase is specified in the certificate from the outset.
- Bonus certificate: A fixed term has also been agreed for bonus certificates. The investor receives a bonus when the certificate expires, as long as the base value does not fall below the so-called security level within the term. As soon as the base value falls below this, the bonus also decreases accordingly. In this case, the investor receives the closing price of the underlying.
- Leverage certificate: A disproportionate profit is possible with leverage certificates. The so-called leverage indicates how much more profit is possible on the actual underlying with the certificate. However, if the underlying falls sharply, losses up to a total loss are also possible.