If you look at the long-term development of stock indices, commodities or even individual securities, you will notice that very often, there is a long-term upward trend, which is interrupted by a short regression. If you can expect such a market development, then there are two strategies to react to it: The successful one is to take the profits with you and temporarily store the money you have earned on a call money account. If you consider doing so, you can find the best offers in our call money comparison. It can be even more profitable to use both the upward and downward movements: In such cases, investment vehicles whose prices rise with falling quotations can be used.
On the financial markets, there have been investment opportunities for both rising and falling prices for centuries. On the Chicago Board of Trade (Chicago’s options and futures market) even since 1848. This is part of the normal functioning and mechanism of the financial markets, even though there are many people who are against these instruments. A German minister of finance, Wolfgang Schäuble, has even demanded that hedging against price losses should be banned, and thus also the potential value that investors can draw from it. At first glance, the “prohibition of short selling” looks good. Spiegel has already reported about it over five years ago. Nevertheless, there is still the possibility of hedging against risks on the markets and being able to bet on both rising and falling prices.
Exchange-traded funds use rising OR falling prices
Surprisingly, there are also exchange-traded funds that offer you as an investor the opportunity to generate earnings from falling prices. This category of funds is referred to as “short ETFs”: In other words, exchange-traded funds that use transactions to bet on falling prices. In 2012, the Handelsblatt has already published an impressive article describing how they work. However, this fund category is not very common. This is probably due to the fact that the time sequence of stock market boom phases and short reset phases would lead to only parking the money of the short ETF temporarily – so that it is available daily if the market changes again. This is why most ETFs are intended for rising prices, the short ETF is more of a niche product.
Put options increase in value as prices fall
Put options are one of the established instruments on the futures markets and are often bought by investors to hedge portfolios against value losses. For a small premium – the fair value – a put option freezes profits, in contrast to the true intrinsic value. If you buy put options with the exact value of a position, the option increases to the exact extent that the position falls. If you as an investor buy a put option without having the underlying in your portfolio, you benefit from the falling value. However, this instrument is more suitable for short-term hedging, as longer-term strategies can be expensive due to their fair values or premiums.
CFDs – offer “pure” participation in changes in value
Many investors are interested in participating in the value changes of a share or an index. In order to achieve a large leverage, for example, you do not want to buy 100 Daimler or BASF shares, but only the right to the change in value for the period between the beginning and end of the transaction. If you are interested in a value increase in case of falling prices, you can sell the right to the change in value (also called contract for difference). On the other side, someone buys this right on the value change because his/her speculation is going in the direction of rising prices. If the price of the security whose value adjustment right you sold then falls, this value adjustment right also becomes cheaper. Since you – figuratively speaking – want to balance out a minus of this value adjustment right, you then buy it back at the cheaper price. The difference between your higher “sale price” and the lower “repurchase price” results in an increase in value after deduction of fees in the case of falling prices.
CFDs have become a common investment instrument offered by discount and online brokers and they fully comply with European regulations on financial markets and financial supervision. In the opinion of the editors, the conditions of the individual brokers are considerably more favourable than the premiums for warrants; in our comparison, plus500.de and Banxtrading.de were particularly noteworthy. Plus500.de is a prestigious CFD platform whose parent company is listed on the London Stock Exchange and is one of the most established platforms for CFDs. At Banxtrading.de German, European and US shares can be traded with a security deposit of 5 %. Banxtrading.de is registered in the commercial register in Düsseldorf.
Der erste Schritt zum Investment in Aktien, Anleihen, Fonds oder ETFs ist die kostenlose Eröffnung eines Broker-Accounts.
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