A derivative is a financial security or instrument that derives its value from underlying assets, such as commodities, currencies (including crypto), stocks, bonds, market indexes and more. The price of the derivative is determined by fluctuations of those assets.

At Swissquote, Yield Boosters refer to Barrier Reverse Convertibles (BRC). The Barrier Reverse Convertible, or BRC, is one of the most popular yield enhancement products in Switzerland. BRC is a special variant of the classic reverse convertible, which sees the holder give up potential upside exposure to an underlying asset in exchange for an enhanced coupon. The holder also avoids downside exposure, unless a predefined barrier is broken through.

A sideways trending market is the best scenario for BRC as the product will always outperform its underlying asset on the downside, and will also outperform if the asset doesn’t rise by more than the coupon.

The underlying is a stock or bond on which derivatives (such as futures, ETFs, and Swissquote’s Yield Boosters) are based. Any fluctuation or movement of the underlying will affect the pricing of the derivative.

The maturity date is the agreed date that an investment ends: the principal is repaid and interest payments stop. The term is most commonly used for bonds, but is also applied to Swissquote’s Yield Boosters.

A coupon is the amount of annual interest paid on our Swissquote’s Yield Boosters or on bonds. Expressed as a percentage of the face value, the amount is paid out periodically from the issue date until the maturity date.

The barrier is a pre-determined percentage of the current underlying price. If none of the underlyings breach that level, the investor recovers 100% of the initial investment, plus the coupon. Otherwise, they still receive the coupon, but recover less than the initial investment, according to the final underlying price.

There are two types of barrier: with a EU-style barrier, only the price at maturity is observed to determine if a breach event happened; whereas a US-style barrier can’t be breached at any time during the product life cycle.

Swissquote’s Yield Boosters are quanto derivatives, meaning the underlying is expressed in one currency, and settled in another. This gives investors exposure to foreign assets without a corresponding exchange rate risk.

The strike price, or exercise price, is the price at which the underlying asset of a derivative can be bought or sold. It’s the most important determinant of option value, and triggers the ability of an investor to buy or sell, depending on whether a call or put option was purchased.

A cap included in structured products allows for investors to benefit from more attractive conditions with a sideways trend of prices, but may also limit the investor’s profit potential.

Bonds are traded as percentages of their nominal value, which is the original value without any adjustments having been made for inflation or other factors that might affect its price. Bonds are typically repaid at their nominal value on reaching maturity.

A soft call provision can make a derivative more attractive for investors as it requires the issuer of a bond to pay a premium should the bond be called earlier.

If a Yield Boosters structured product is callable, it may be redeemed early by the issuer. If this occurs, investors are generally compensated by a more attractive interest or coupon rate.

Auto-callable Yield Boosters have an automatic call feature that triggers when the underlying passes an upside barrier prior to the date of maturity. The product is considered matured, and the issuer returns the investor’s principal, and an above-market coupon.

Non-callable Yield Boosters cannot be redeemed by the issuer prior to the date of maturity. These products come with lower interest rates, which is balanced by a lower level of risk for the investor.

The underlyings of our Yield Boosters structured products are often listed on their home stock exchanges in foreign currencies, exposing the investor to currency exchange risk. A quanto feature protects the investor from exchange rate fluctuations while offering exposure to foreign assets.

Physical delivery occurs when the settlement of securities are exercised and shares are made available at the strike price. If the investor chooses physical delivery over a cash settlement, the underlying shares will be delivered to the investor’s brokerage account.

Cash settlements occur when an investor opts for a cash settlement when securities reach a settlement date. The net cash position is delivered to the investor’s brokerage account, rather than the underlying assets.