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The instruments in this category give the holder an opportunity to "participate" in the return of the underlying asset. The underlying asset can be a specific index, equity, commodity, or similar. The princial is that the products move as much as the underlying asset itself, both in a rising and a declining market. The insturments that mirror the return of the underlying assets one-to-one (1:1) are called "Trackers". Examples of "Trackers" are Open End Certificates, Certificates, and Basket Index Certificates. The other instruments in this categoryalso follows the return of the underlying asset, however, they do not mirror the return of the underlying asset one-to-one (1:1).
For example, the issuer might use the future expected dividends to create leverage in the product so that it pays a higher return than the underlying asset when the market is rising, or, to create a "safety buffer" or limit the down side return in the product in the case of a declining market.
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