Information on investment risks

The advice given below is designed as a primer for investing in money market and capital market instruments, and to help you recognize and define your own risk tolerance for investments. The information presented here however cannot replace talking in person with your account manager.

Therefore, we request that you read this information carefully. Your account manager will gladly answer any questions you might have.

Risk means the possibility of failing to achieve the expected return on an investment and/or losing all or part of the invested capital. Such risk may be due to a variety of causes, depending on the specific structure of the product concerned. Such causes may be inherent in the product, the markets, or the issuer. Since risks are not always foreseeable, the following discussion must not be considered to be conclusive.

In any case, investors should pay particularly close attention to any risk related to the credit rating of the issuer of a product, which always depends on the individual case.

The description of the investment products is based on the most typical product characteristics. The decisive factor is always the specific structure of the product in question. For that reason, the following description is no substitute for a thorough examination of the specific product by the investor.

Generally, the following should be kept in mind when investing in securities:  

  1. The potential return of every investment depends directly on the degree of risk. The higher the potential return, the higher the risk.
  2. Irrational factors (sentiment, opinions, expectations, rumors) may also impact prices and thus the return on your investment.
  3. Investing in several different types of securities can help to reduce the risk of the overall position (principle of risk diversification).
  4. Every customer is responsible for the proper taxation of his or her investment. The credit institution is not permitted to give tax advice outside the scope of investment advice.

Currency risk
In the case of transactions in foreign currency, the return and performance of an investment depends not only on the local yield of the security in the foreign market, but also heavily on the exchange rate development of the respective foreign currency relative to the currency of the investor (e.g. euro). This means that exchange rate fluctuations may increase or decrease the return and value of the investment.

Transfer risk
Depending on the respective country involved, securities of foreign issuers pose the additional risk that political or exchange-control measures may complicate or even prevent the realisation of the investment. In addition, problems in connection with the settlement of an order may occur. In the case of foreign-currency transactions, such measures may obstruct the free convertibility of the currency.

Country risk
The country risk is the creditworthiness of a given country. The political or economic risk posed by a country may have negative consequences for all counterparties residing in this country.

Liquidity risk
Tradability (liquidity) refers to the possibility of buying or selling a security or closing out a position at the current market price at any time whatsoever. The market in a particular security is said to be narrow if an average sell order (measured by the usual trading volume) causes perceptible price fluctuations and if the order cannot be settled at all or only at a substantially lower price.

Credit risk
Credit risk refers to the possibility of counterpart default, i.e. the inability of one party to a transaction to meet obligations such as dividend payments, interest payments, repayment of principal when due or to meet such obligations for full value. Also called repayment risk or issuer's risk. Such risks are graded by means of “ratings”. A rating is scale of evaluation used to grade an issuer’s creditworthiness. The rating is prepared by rating agencies, notably on the basis of credit risk and country risk. The rating scale ranges from “AAA” (best credit rating) to “D” (worst credit rating).

Interest rate risk
The risk that losses will be incurred as a result of future interest rate movements in the market. A rise in interest rates on the market will lower the market price of a fixed-interest bond, whereas a fall in such interest rates will raise the market price of the bond.

Price risk
The risk of adverse movements in the value of individual investments. In the case of contingent liability transactions (forward exchange deals, futures, option writing, etc.), it is therefore necessary to provide collateral (margin requirement) or to put up further margin, which means tying up liquidity.

Risk of total loss
The risk that an investment may become completely worthless, e.g. due to its conception as a limited right. Total loss can occur, in particular, when the issuer of a security is no longer capable of meeting its payment obligations (insolvent), for economic or legal reasons.

Buying securities on credit
The purchase of securities on credit poses an increased risk. The credit raised must be repaid irrespective of the success of the investment. Furthermore, the credit costs reduce the return.

Placing orders
Buy or sell orders placed with the bank must at least indicate the designation of the investment, the quantity (number of securities/principal amount) to be purchased or sold, at what price the transaction should be carried out and over what period of time the order is valid.

Price limit
If buy or sell orders are placed with the instruction "at best" (no price limit), deals will be executed at the best possible price. This way, the capital requirement/selling proceeds remain unceratin. With a buy limit, the purchase price and thus the amount of capital employed is limited. No purchases will be made above the price limit. A sales limit stipulates the lowest acceptable selling price; no deals will be carried out below this price limit.

Important note: A stop market order will not be executed until the price formed on the stock reaches the selected stop limit. Once the order has been executed, it will enter into effect as an “at best” order, i.e. with no price limit. The price actually obtained may therefore differ significantly from the selected stop limit, especially in the case of securities on a tight market.

Time limit
You can set a time limit to determine the validity of orders. The period of validity of unlimited orders depends on the practices of the respective stock market.

Your CA investment adviser will inform you of further additions which can be made when placing an order.

The term “guaranty” may have a variety of meanings. The first meaning is the commitment made by a third party other than the issuer in order to ensure that the issuer will meet its liabilities. Another meaning is a commitment made by the issuer itself to perform a certain action regardless of the trend in certain indicators that would otherwise determine the amount of the issuer’s liability. Guaranties may also be related to a wide variety of other circumstances.

Capital guaranties are usually enforceable only until end of term (repayment), so that price fluctuations (price losses) are quite possible during the term. The quality of a capital guaranty depends to a significant extent on the guarantor’s creditworthiness.

Tax considerations
Your CA investment adviser will provide you with information on the general fiscal aspects of the individual investment products. The impact of an investment on your personal tax bill must be evaluated together with a tax consultant.

Risks on stock markets, especially secondary markets (e.g. Eastern Europe, Latin America, etc.)
There is no direct line of communications with most of the stock exchanges on secondary markets, i.e. all the orders must be forwarded by telephone. This can lead to mistakes or time delays.

In certain secondary stock markets, limited buy and sell orders are generally not possible. This means that limited orders cannot be given until the request has been made by telephone with the local broker, which can lead to time delays. In certain cases, such limits cannot be executed at all.

In certain stock markets it is difficult to receive the current prices on an ongoing basis, which makes it difficult to assess the customer’s existing position.

If a trading quotation is discontinued on stock exchange, it may no longer be possible to see such securities on the exchange in question. A transfer to another stock market may also cause problems.

In certain exchanges of secondary markets, the trading hours by no means correspond to Western European standards. Short trading hours of only three or four hours per day can lead to bottlenecks or failure to process securities orders.

“Structured investment instruments” are investment instruments for which the return and/or repayment of capital are not generally fixed but rather depend on certain future events or developments. Moreover, such investment instruments may be structured in such a way that the issuer may call them in early if the product reaches the target value; in such cases, they be even be called in automatically.

This section will describe the individual product types. We will use generic terms to refer to these product types, but those terms are not used uniformly on the market. Due to the many possibilities of linking, combining and disbursement related to such investment instruments, they have developed a wide variety of different structures whose selected names do not always follow the structures uniformly. For that reason, it is always necessary to examine the specific terms and conditions of the product. Your customer adviser will be happy to inform you of the various structures of such investment instruments.


  1. When the terms provide for payments of interest and/or dividends, such payments may depend on future events or developments (indexes, baskets, individual stocks, certain prices, commodities, precious metals, etc.) and may therefore be reduced or even eliminated in the future.
  2. Repayments of principal may depend on future events or developments (indexes, baskets, individual stocks, certain prices, commodities, precious metals, etc.) and may therefore be reduced or even eliminated in the future.
  3. With respect to payments of interest and/or dividends as well as repayments of principal, it is necessary to take into account interest risk, currency risk, corporate risk, sector risk, country risk and credit risk (and possibly a lack of secured creditor rights and no claim for separation and recovery of assets not belonging to the bankrupt estate) as well as tax risks.
  4. The risks defined by paragraphs 1) through 3) above may lead to strong price fluctuations (price losses) during the term of the instrument regardless of any guarantees of interest, earnings, or principal; such risks may also make it difficult or impossible to sell the instrument before it reaches maturity.

Interest Spread Securities Products (Constant Maturity Swaps)

These products, which are structured like debt securities, initially feature a fixed coupon. After the fixed-interest phase, the products are converted to a variable interest rate. The coupon, which is generally annual, depends on the current interest situation (e.g. the interest curve). In addition, such products may involve target interest rate variant; i.e. if a predetermined target interest rate is achieved, the product will be called in early.

In the fixed-interest phase, the investor generally obtains a higher coupon than with conventional bonds on the market. In the variable-interest phase, investors have the opportunity of achieving higher coupons than from fixed-interest bonds.

Before maturity, market-related price fluctuations may occur. Such fluctuations may prove significant, depending on the interest rate trend.

Guaranty certificates

When guaranty certificates reach maturity, they pay out the initial face value or a certain percentage thereof regardless of the performance of the underlying security (“minimum redemption”).

The maximum return obtainable from the performance of the underlying security may be limited by a maximum redemption price or other restrictions on participation in the performance of the underlying security established in the terms and conditions of the certificate. The investor is not entitled to dividends and similar distributions on the underlying security.

The value of the certificate before maturity may fall below the agreed minimum redemption price before maturity. At maturity, the value will generally be at the level of the minimum redemption price, however. The minimum redemption price depends on the issuer’s creditworthiness.

Twin Win certificates

When Twin Win certificates reach maturity, the issuer pays out a redemption price that depends on the performance of the underlying instrument. The certificates have a barrier. If (as a general rule) the price does not reach or falls below the barrier of the Twin Win certificate before it matures, the investor shares in the absolute performance of the underlying instrument starting from the base price set by the issuer; this means that even price losses of the underlying instrument may translate into gains on the certificates. If the price reaches or falls below the barrier of the Twin Win certificate before maturity, the certificate will be redeemed at a price at least equal to the current price trend of the underlying instrument. The issuer may stipulate that disproportionate sharing in the performance of the underlying instrument is possible above the base price. There may be a limit on the maximum redemption price, however.

If the price does not reach the barrier, the investor may also profit from the negative performance of the underlying instrument, since he shares in the absolute performance; price losses in the underlying instrument may therefore translate into gains. The certificate may react more or less strongly to the price fluctuations of the underlying instrument depending on various influencing factors (e.g. volatility of the underlying instrument, time to maturity, distance of the underlying instrument from the barrier).

Twin Win certificates are risky investment instruments. If the price of the securities underlying the Twin Win certificate changes unfavourably, all or much of the invested capital may be lost.

Express certificates

An express certificate lets the investor share in the performance of the underlying instrument with the option of early redemption. If on one of the determination dates the underlying instrument satisfies the trigger criterion specified by the issuer, the certificate expires early and will be automatically redeemed by the issuer at the redemption price applicable on the determination date in question. If the underlying instrument does not satisfy the specified trigger criterion even on the final determination date, the certificate will be redeemed at the closing price of the security underlying the certificate established at maturity/on the final determination date. In that case, if the issuer set a barrier at the start of the issue of the certificate and the price of the underlying instrument neither reaches nor breaks through the barrier during the observation period, the certificate will be redeemed at a price at least equal to the minimum redemption price defined by the issuer.

Express certificates offer the possibility of early realisation of the positive performance of the underlying instruments. Even if the specified trigger criterion is not satisfied, there may be a payout of the minimum redemption price, if the barrier has not been reached or broken through.

The certificate may react more or less strongly to the price fluctuations of the underlying instrument depending on various influencing factors (e.g. volatility of the underlying instrument, time to maturity, distance of the underlying instrument from the barrier).

Express certificates are risky investment instruments. If the price of the securities underlying the Express certificate changes unfavourably, all or much of the invested capital may be lost.