Complex financial instruments are available to DIY investors but it is important to understand the features of each specialised product and their risk profile.
These products can have unusual features, for example, they can be subject to a different tax status, which means your dividends could incur additional tax. Or they may have an element of leverage, which means that potential profits or losses can be magnified. It is why all investors are now asked to complete an appropriateness assessment before investing in a complex instrument.
The appropriateness assessment is for your protection, as it is essential that the special risks and volatility that apply to these types of investments is understood. You only need complete it once, and will be directed to the form once you select the complex instrument you’d like to invest in.
Alternatively, you can complete a printed copy of the form using the link below, and then return it to us.
Warrants give you the option (though not an obligation) to purchase shares at a fixed price for a specified period. The price of the warrant will vary depending on the price of the underlying investment, the exercise price and the time left to maturity. It is important to remember if warrants are not exercised at the expiry date, they may be worthless.
Issued by a range of investment companies such as RBS, Barclays Capital and Société Générale, Listed Structured products use different financial instruments such as futures, options and swaps to create investments that provide you with a level of exposure to stock market gains coupled with guarantees to limit losses or to lock in gains as the market rises.
Covered Warrants are issued by large financial institutions, such as Société Générale and Royal Bank of Scotland, and, like Traditional Warrants, give you the right to buy or sell existing shares at a fixed price by a certain date. 'Covered' relates to the requirement of the issuer to hold (or hedge) a sufficient amount of the underlying asset to cover the issue.
Covered Warrants will automatically exercise at the expiry date, are traded on the stock exchange, and are settled through your account in the normal way.
Exchange traded funds (ETFs) and exchange traded commodities (ETCs) combine the benefit of a fund and a stock in one investment.
ETFs can track hundreds of stocks across various industries and asset types including banking, equities or property while ETCs offer a convenient way to invest in single markets like livestock, precious metals or natural gas. Find out more about ETFs.
While a traditional ETF typically tracks the securities in its underlying index, a leveraged ETF uses financial derivatives and debt to amplify the returns of an underlying index. This can lead to significant gains, but it can also lead to significant losses. Investors should be aware of the risks to leveraged ETFs since the risk of losses is far higher than those from traditional investments.