The stated fee structure ensures a cost of at least 0.15% is incumbent on the holder’s investment performance on a daily basis. On the other hand, the Leverage Shares 3X Alibaba Long ETP (Deutsche Borse Ticker 3BBE; ISIN: XS2337090851; more details here) effectively charges the holder a daily rate of a little under 0.03%.

As before, the disparity in fee levels is also based on the formulation of costs: the DLC is an intricate financially-engineered instrument while the ETP is built upon the Effective Fed Funds Rate prevalent at any time.

One more aspect that should be borne in mind with financially-engineered products such as Factor Certificates and DLCs is their time to expiry. Most Factor Certificates (and Daily Leveraged Certificates) are designed with a “Expiry Date”, i.e., on a certain day in the near future, these instrument would cease to exist and the holder will have to settle with the issuer at the DLC’s fair intrinsic value that is determined on its “Valuation Date”, which is usually one business day before the stated Expiry Date. After expiry, the holder can choose re-invest in another engineered product with the same underlying, if they wish to continue to bet on the underlying and if such an instrument is available at the time.

Technically, ETPs generally have no expiry date. Some jurisdictions necessarily require a date in which event a date is included (and subsequently extended). An ETP would generally be delisted only if the Net Asset Value approaches US$0. In such an event, the holder would receive the delisting price for their investment.

Another note: some jurisdictions also necessarily require ETPs to be termed as Exchange-Traded Notes (ETNs). This might be confusing to some investors. It’s always important to read the Key Information Document to know the general features. ETNs typically don’t have a single underlying security (such as, say, Tesla). This highlights why it’s important for investors new to this space to read the Key Information Document (KID) to understand what they’re buying into.

ETPs vs CFDs

Not every ticker is represented in the form of a Certificate (be it DLC or Factor Certificate) nor are Certificates available in every region. In either event, brokerages are known to step in with a type of arrangement known as “Contract for Differences” (or simply CFDs). For a certain class of investor, the brokerage would essentially structure a deal with specific costs that could widely from investor to investor.

Like Certificates, there is no single universal template for costs that brokerages follow. For example, eToro simply states the following schedule of fees: