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6 new underlying stocks to widen range of Single Stock DLCs: SGX
A NEW batch of Single Stock Daily Leverage Certificates (DLCs) comprising six new underlying stocks, including mainboard-listed City Developments (CDL), Singapore Airlines (SIA) and the Singapore Exchange (SGX) will start trading on July 3, SGX said in a press statement on Friday.
DLCs are financial instruments issued by a third-party financial institution, in this case Societe Generale, and are traded on the SGX securities market. DLCs seek to achieve short-term investment results that correspond to the daily magnified performance of the underlying index or stock.
The six underlying stocks consist of three Singapore stocks, namely CDL, SIA and SGX, as well as three Hong Kong stocks - Sunny Optical, AAC Technologies and Sands China.
Among other things, the Single Stock DLCs will provide five times leverage exposure to the daily performance of the underlying stock for both long and short positions. While the Single Stock DLCs will expire in three years on June 30, 2022, they are generally designed for short-term trading, with typical holding periods ranging from intra-day to five trading sessions, SGX said.
With five times leverage on the daily performance of the underlying stock, the DLCs provide investors with the ability to make enhanced returns within a short period of time, but there is also the risk of substantial losses if the underlying stock moves against the investor, SGX added.
The Singapore bourse also noted that DLCs offer a cheaper alternative to gain leveraged exposure to blue-chip stocks. The new batch of Single Stock DLCs are priced between S$0.35 and S$0.60, depending on the underlying stock. This means that investors can gain 5x leverage exposure to the underlying stock with a lower capital outlay. For example, to achieve the same S$5,000 exposure as buying the CDL stock, an investor only needs to spend S$1,000 to purchase the 5x DLCs on CDL. In comparison to other leveraged instruments such as Contract for Differences (CFDs), the trading commission charged by the broker for DLCs is also usually lower on average, SGX said.
It also noted that DLCs are products with features that might be more complex in nature, and are only suitable for investors with investment knowledge of more complex products, and have a high risk tolerance. Thus, all investors need to be qualified to trade in Specified Investment Products to be able to trade these products.
Lastly, the addition of these six new underlying stocks will widen the Single Stock DLCs offering to 56 DLCs. With the introduction of this second batch of Single Stock DLCs, traders can look forward to a wider range of underlyings, including key Asian indices such as the MSCI Singapore Index and Hang Seng indices, as well as a total of 26 underlying Singapore and Hong Kong single stocks, SGX said.