Why Wait for Wall Street to Open, Here’s how you can trade US DLC in Asian Hours

While you don’t own the actual stocks, Daily Leverage Certificates (DLCs) allow traders to take long or short positions on various underlying instruments, including single stocks, with leverage. Instead of holding the physical stock, traders can express their ideas and benefit from price movements—whether the market goes up or down. These US stock DLCs take their pricing cues from stocks trading on 24-hour platforms during Asian hours, closely mirroring actual stock movements.

This means more trading opportunities for investors, and here are some additional benefits:

1. Convenient Access for Asian Investors: Trading US stocks during Asian hours allows investors in the region to avoid the need to stay up late or wake up early. With market access aligned to local working hours, it becomes more practical to manage investments.
2. Faster reaction to market news during Asian hours: US stocks often react to global economic events or breaking news outside of regular US trading hours. With trading available during Asian hours, investors can respond immediately to these developments, rather than waiting for the US market to open.
3. Capture Overnight US Stock Movements: US companies frequently release earnings reports and significant corporate news after regular US trading hours. The ability to trade during Asian hours allows investors to react quickly to these announcements, gaining an advantage over those who wait for US market opening.

Let’s look at a few scenarios. For example, imagine news of a global pandemic or conflict breaks during Asian hours. Instead of waiting for the US markets to open and sell your positions, you can quickly hedge by buying short DLCs.

Or consider Nvidia announcing stellar earnings after the US markets close, with the stock jumping in after-hours trading. A trader, believing there’s more upside when the markets open, could buy a long DLC before the US market opens, potentially benefiting from a gap-up at the open.

There are countless ways to trade US stock DLCs during Asian hours, and the best strategy depends on your trading approach. Moreover, the availability of this new product opens up the potential for new strategies that fit this unique trading window.

A significant development in financial markets has been the rise of single-stock leveraged ETFs, which have gained tremendous popularity in recent years. According to Morningstar, the total assets in these single-stock ETFs have skyrocketed from negligible levels in 2022 to over $7 billion in 2024.

Similarly, the payoff of the single-stock DLCs are very similar to these single-stock ETFs, though they are structured differently—one being a certificate, the other a fund. From a trader’s perspective, the differences are minimal. In fact, traders can use single-stock ETFs during US trading hours and single-stock DLCs during Asian hours, allowing for nearly 24-hour trading opportunities if their strategy calls for it.

There are several reasons why traders may prefer single-stock DLCs:

1. Amplified Returns (and Risks). Single-stock DLCs are designed to amplify the daily performance of a specific stock by up to 5x. This offers traders the potential to achieve significantly higher returns in a shorter time frame compared to directly holding the stock. For instance, a 5% move in the stock can be amplified to 15% with a 3x Long DLC, boosting returns dramatically. Given the shorter holding periods typically involved in trading, leverage helps compensate for the limited time available for the stock price to grow.
2. Low Capital Requirement. Leveraged DLCs allow traders to gain exposure to a stock with much less capital than would be required to buy the stock outright. This lower barrier to entry makes it easier for investors to execute aggressive strategies without tying up significant funds. It’s also an advantage for hedgers, as a smaller position can be used to hedge a larger portfolio due to the leverage.
3. Avoiding the Complexities. While DLCs are derivatives, they are simpler to trade compared to futures or options. DLCs do not suffer from time decay or volatility factors, and they offer a fixed leverage amount on a daily basis. Moreover, DLCs can be bought and sold on the stock market through regular brokerage platforms, without the need for a margin account, as the leverage is already built into the product.

Of course, leverage is a double-edged sword—it can magnify gains but also exacerbate losses. Traders must be prepared to handle the volatility and implement effective risk management strategies to mitigate the risks associated with trading leveraged products like DLCs.

SocGen, a pioneer in DLC trading in Singapore, has seen significant growth in its DLC trading business over the past seven years. Building on this success, SocGen has lauched the new US single-stock DLCs on SGX in October 2024. These DLCs offer 3x leverage for both long and short positions on popular “Magnificent 7” stocks:

A unique feature of these single-stock DLCs is that they are denominated in SGD, even when tracking US stocks. This makes it convenient for local traders who primarily hold SGD, eliminating the need to convert to USD for trading US stock DLCs.

It’s important to note that every investment carries risk, and DLCs are more suitable for short-term trading rather than long-term investing due to the compounding effects of leverage. Before trading DLCs, it’s crucial to understand the key features, including the airbag mechanism. DLCs are also classified as Specified Investment Products (SIPs), so you must be qualified to trade them.

For experienced traders, these US single-stock DLCs offer expanded trading options, opening up new opportunities to diversify your trading strategies.

This article is sponsored by Société Générale, Singapore Branch.

Disclaimer

This advertisement has not been reviewed by the Monetary Authority of Singapore. The views expressed under this article represent the personal and independent views of the author and do not constitute investment advice. The content of this article does not form part of any offer or invitation to buy or sell any daily leverage certificates (the “DLCs”), and nothing herein should be considered as financial advice or recommendation. The price may rise and fall in value rapidly and holders may lose all of their investment. Any past performance is not indicative of future performance. Investments in DLCs carry significant risks, please see dlc.socgen.com for further information and relevant risks. The DLCs are for specified investment products (SIP) qualified investors only.