This article was created in partnership with SGX. The views and opinions expressed are Beansprout’s objective and professional opinions.

What happened?

The Singapore Exchange (SGX) and Societe Generale (SocGen) have introduced Daily Leverage Certificates (DLCs) on the “Magnificent 7”, including household names such as Nvidia, Apple, Tesla, Alphabet, Amazon, Meta, and Microsoft. 

With the latest offering, investors now have the opportunity to gain exposure to these US companies during Asia hours.

First launched on the Singapore Exchange (SGX) in 2017, DLCs issued by Societe Generale allow active traders flexibility in capturing magnified gains or losses on daily market fluctuations.

Let’s dive deeper into these US stock DLCs and how they can be used to enhance trading strategies.

What are the key features of US DLCs?

• Short without margin: Take short positions without margin, ideal for hedging.
• Trade market events: Capitalize on earnings and other Asia-hour events.
• Leveraged exposure: Access US stocks with amplified gains using less capital (but higher risks).
• Trade in SGD: Avoid the need to hold USD.
• Capped losses: Losses are limited to the amount invested, reducing downside risk.
• Lower capital outlay: Get more significant exposure with less capital required 

Let us dive deeper into each of these features of US DLCs.

#1 – Ability to short without margin

With both Long and Short DLCs available, traders can profit in both bullish and bearish markets. 

This flexibility is especially useful for those looking to hedge positions or capture gains during periods of market volatility.

This feature makes it convenient for traders to express bearish views via Short DLCs.

In contrast, Contracts for Difference (CFDs) require margin, and may lead to losses exceeding your initial capital invested.

#2 – Trade market events

With DLCs available during Asia hours, investors can act on news and market-moving events before the US markets open. 

This is useful in tapping on trading opportunities that may arise from events such as earnings release or Federal Reserve interest rate announcements. For example, Tesla share price surged 12% in after-hours trading post 3Q 24 earnings release.

#3 – Leveraged exposure of up to 3x

DLCs offer leveraged exposure, allowing for greater potential gains (or losses) based on the movement of the underlying asset. The first batch of US stock DLCs offers up to 3x leverage.

The payoff is similar to 3x Long & Inverse (L&I) ETFs, providing a versatile tool for traders.

#4 – Trade conveniently in SGD

DLCs are traded just like stocks on the SGX, allowing investors to easily enter and exit positions. 

With transparent pricing and liquidity provided by the designated market maker, qualified investors can trade DLCs during market hours just as they would any other listed security.

#5 – Capped Losses

DLCs are non-margin products, which means that the maximum amount an investor can lose is limited to the initial capital invested in the DLC.

For DLCs, if the trade goes wrong, the loss does not exceed the invested amount, providing a clear understanding of the risk.

#6 – Lower Capital Outlay

DLCs allow investors to gain leveraged exposure to an underlying asset without having to commit a large amount of capital upfront. 

DLCs do not require a margin account. This means investors only need to pay the purchase price of the DLC to get the leverage without worrying about additional margin calls or maintaining a certain amount in their account to keep their position open.

Since the capital outlay is lower, investors can allocate their capital to different sectors, asset classes, or trading strategies, potentially enhancing overall returns or spreading risk.

What are the available US Daily Leverage Certificates?

The first launch of the US stock DLCs on 4 October 2024 covers Apple, Tesla and Nvidia.

The second launch on 8 October extended to Alphabet, Amazon.com, Meta Platforms, and Microsoft. 

The new DLCs offer 3x long/short exposure to the US stock underlyings, and are traded in Singapore Dollar. 

SocGen is the issuer for this first batch of US stock DLCs. To check out the full list of U.S. stock DLCs and respective underlying reference prices in Asia hours (delayed), do visit https://dlc.socgen.com/en/usdlc.

Based on the trading activity since the launch of the US stock DLCs, the Nvidia, Tesla and Apple DLCs have been the most actively traded. 

Total turnover of these newly listed DLCs hit close to S$0.5 million in the first 3 days of trading.

Nvidia DLCs topped the chart with S$160k, followed by Tesla with S$141k and Apple with S$76k.      

How can US stock DLCs be used to enhance your trading strategies? 

#1 – Intraday trading on market-moving events in Asia hours

One significant advantage of using US stock DLCs is the ability to react to market-moving events that happen outside of the US market hours. 

With US stock DLCs traded during Singapore hours, investors can capitalise on overnight news and market sentiment, which may not have yet fully reflected in the underlying asset’s price during pre-market or after-hours trading.

Here are a few examples to illustrate how this might have played out during past instances of unexpected developments, company earnings, and macroeconomic surprises. 

Example: Nvidia DLC reacting to strong earnings by TSMC     

What Happened 

Taiwan Semiconductor Manufacturing Company (TSMC) reported stronger-than-expected earnings on the morning of 17 October in Singapore Time (SGT)

As TSMC is a supplier to Nvidia, its strong financial results led investors to be more optimistic about the demand for Nvidia’s advanced artificial intelligence chips. 

Impact on the Stock Market

Following TSMC’s earnings announcement, Nvidia’s share price rose in the US after-market on 17 October 2024 (SGT). 

Trader’s Strategy Using DLCs

Investors expecting Nvidia’s share price to increase due to favourable earnings results from TSMC may have bought a 3x Long Nvidia DLC position on 16 October (SGT). 

The 3x Long DLC is designed to magnify by three times the performance of Nvidia’s stock, before costs and fees. Therefore, when Nvidia’s stock price rises, the increase in the price of the 3x Long DLC is magnified. 

Gains from the Strategy

As Nvidia’s share price rose in the US pre-market, the 3x Long DLC would amplify this movement to a gain of approximately 7.6% on 17 October (SGT).

#2 – Swing trading for short-term price movements

DLC intrinsic close price tracks the daily close-to-close price change of the underlying stock in US time. Investors can initiate positions in anticipation of events like earnings releases or FOMC meetings, which may cause significant overnight moves.

Example: Tesla Long DLC Reacting to Positive Earnings Surprise 

What Happened?

Tesla reported stronger-than-expected earnings after the US market closed on 23 October 2024. This would be on the morning of 24 October (SGT).

Impact on Stock Market

Following this announcement, Tesla’s share price rose in the US post-market on 24 October in SGT. 

Trader’s Strategy Using DLCs

Investors expecting stronger earnings or ready to react to Tesla’s announcement could have taken a 3x Long Tesla DLC position on 23 October in SGT. 

Gains from the Strategy

As Tesla share price rose in the US post-market on 24 October (SGT), the 3x Long DLC amplified this movement to a gain of approximately 31% on 24 October (SGT)

Traders holding the 3x Long Tesla DLC would have seen up to a 31% return during the morning session of 24 October (SGT).

Following the stock’s 21.8% gain during US trading hours on 24 October, the 3x Long Tesla DLC increased by another 20% on 25 October (SGT).

This would bring the total gains on the 3x Long Tesla DLC to approximately 54% over two days.

US stock DLCs allow investors to capture both upside and downside movements through different DLCs (long or short), magnifying potential gains based on pre-positioning around known events like earnings or economic announcements. 

The ability to react to overnight moves makes these products useful for traders looking to capitalise on short-term directional changes.

Besides trading on market-moving events during Asia hours, Tesla’s recent surge is an example that U.S. stock DLCs may be held overnight for short-term directional trading. 

However, investors should note that losses will also be magnified in the opposite direction. In a sideways market, compounding may erode returns.

What are the key risks of US DLCs?

DLCs traded on SGX follow Singapore trading hours, which means that once the local market closes, I can no longer trade or adjust my positions.

The challenge arises because US markets operate in a different time zone and remain active after Singapore’s trading hours. Key events, like earnings announcements or policy updates, are often released during US market hours, leading to sudden price swings.

Since I can’t trade DLCs after Singapore’s market closes, I’m unable to react or adjust my positions in response to overnight developments. This introduces the risk of price gaps, where the opening price of the DLC the next day reflects all the overnight price movements of the underlying asset.

If a major event triggers a big shift in the underlying stock price overnight, the DLC could open the next morning with a significant price change, resulting in magnified gains or losses. Therein lies the risk for leveraged products like DLCs, where even small movements in the underlying asset can lead to large price changes due to leverage.

There is an intraday reset mechanism (termed airbag mechanism) on the DLCs that is designed to reduce the exposure of the DLC to changes in the underlying stock in case of significant adverse movement in the underlying stock during the US regular trading hours. However, this mechanism does not apply outside of the US regular trading hours. Investors can read more about the intraday reset mechanism on Societe Generale’s website or SGX’s website.

What would Beansprout do?

Daily Leverage Certificates (DLCs) offer active traders the flexibility to capture amplified gains—or losses—based on daily market movements.

With the launch of US stock DLCs, traders can now seize opportunities in the Magnificent 7 stocks—Nvidia, Apple, Tesla, Alphabet, Amazon, Meta Platforms, and Microsoft—during Asian trading hours.

For instance, we can keep an eye on the upcoming US earnings season for these key stocks and track whether sharp price movements occur during Asian hours in response to earnings announcements.

However, given the leverage involved, it’s essential to fully understand the product features before investing. Additionally, you’ll need to be qualified to transact in Specified Investment Products (SIPs) to trade DLCs.

If you are keen to find out more about US stock DLCs, learn more at the SGX product page here or Societe Generale’s DLC website here.

Disclaimer

Any information provided in this article is meant purely for informational and investor education purposes and should not be relied upon as financial or investment advice, or advice on corporate finance.

This article is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to purchase any financial product or subscribe or enter any transaction. This article also does not take into account your personal circumstances, e.g. investment objectives, financial situation or particular needs and shall not constitute financial advice. You should consult your own independent financial, accounting, tax, legal or other competent professional advisors. 

The information provided in this article are on an “as is” and “as available” basis without warranty of any kind, whether express or implied. Beansprout does not recommend any particular course of action in relation to any investment product or class of investment products. No information is presented with the intention to induce any person to buy, sell, or hold a particular investment product or class of investment products.