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Investment options

You have the choice

The first question you are faced with as an investor is deciding on the type of investment.

This involves weighing up the opportunities and risks, deciding on an investment horizon and taking into account the availability of the capital. The various types of investment category are described below:

Bonds

Safe with a modest return. That is a brief description of investing in bonds. The process of purchasing a bond is similar to granting a loan. As the lender you give the borrower a specific amount in advance and receive the interest due in return. The amount payable in interest depends among other things on the solvency of the borrower and the general level of interest rates.

A fundamental difference between bonds and loans is that bonds are quoted on the financial markets and are therefore tradable. Due to the fact that interest rates have been low for many years, an investment in bonds may be unprofitable if the fees and inflation exceed a low amount of interest income.

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Take advantage of every market situation

Stock options with a leverage effect offer you the chance of attaining an above-average high return for a relatively modest initial outlay, both if share prices rise and fall. The following simple example illustrates how this leverage effect works.

Shares
You invest 1000 US dollars (USD) in 10 classical company shares each with a nominal value of 100 USD. The company’s share price rises by 15% to 115 USD. You now hold shares valued at 1150 USD. If you purchased the share with an initial outlay of 1000 USD, you obtain a profit of 15% or 150 USD.


Stock options
Instead of investing in shares you only invest 100 USD in 10 stock options (the share in our example) with a nominal value of 10 USD. The increase in the share price by 15% and 15 USD per share means that the value of stock option likewise increases by 15 USD. They are now traded for 25 USD. You now hold stock options valued at 250 USD. If you sell the stock options you obtain a profit of 150 USD and 150% with an initial outlay of just 100 USD.

In the case of a call option, falls in share prices also have a negative effect on the stock option and can lead to the loss of the entire amount. Whereas with a share portfolio, if share prices fall you inevitably suffer losses, in the case of stock options you have the possibility of taking advantage of such situations with put options by betting on falling share prices.

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