The "Sharkday" Punch of Structured Products: Gate.io Price Observation Mechanism

Definitions

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Structured product:
It is a new financial product composed of fixed income products and financial derivatives such as options. Compared with traditional current and fixed-term products, structured products superimpose the risks and benefits of derivative portfolios on the basis of the original fixed income. Therefore, the yield to maturity of structured products is not fixed, which is generally determined by the price performance of linked assets.

Shark fin:
It is a principal guaranteed structured product, and its income curve structure is similar to that of shark fins. It is essentially an option derivative, also known as knock-out options.

Knock-out options:
Belongs to a kind of barrier options. When the price of the underlying asset exceeds the observation range, the right is invalid, which is also called knock-out; When the price of the underlying asset does not exceed the observation range, the option is normally settled. The determination of the knock-out is related to the provisions of the observation period. The general provisions include continuous observation, daily regular observation, final observation, etc.

Gate.io observation mechanism:
It refers to whether the observed price has knocked out the range in a specified time period, rather than whether it has knocked out the range in the whole holding period. If the price is not knocked out during the observation period, even if there is price knocking out during the non observation period, it will be regarded as financial management is not knocked out. Using the price observation mechanism, users are more likely to obtain a high rate of return on financial management.

What is Gate.io price observation mechanism

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Recently, Gate.io financial center has launched several principal guaranteed structured products, including weekly shark fin, daily shark fin, bullish shark fin, etc. Such structured products superimpose the risks and benefits of the derivative portfolio on the basis of the original fixed income. Therefore, the yield to maturity of the products is not fixed and is closely related to the price performance of the linked assets. According to the price change of the linked assets, once the price exceeds the agreed observation range, the product will be knocked out, which will affect the final income. Therefore, the knock-out standard has become an important factor affecting the users’ income level.

In order to improve the possibility for users to obtain the highest income and improve the overall financial yield, Gate.io introduces a price observation mechanism. Up to now, a total of four daily shark fin financial products have hit the price range, of which two have obtained the final annualized income of up to 15.50%.

In ordinary structured products, once the linked asset price exceeds the observation range, financial management will knock out. Taking the following figure as an example, on day 2 of the financial management period, the linked asset price knocks out the observation range upward, and the user cannot obtain higher income.


In the Gate.io price observation mechanism, the price might exceed the range during the whole observation period. But as long as the linked asset price does not exceed the range at the observation time point, it will be deemed that the financial products have not been knocked out. In the following figure we observe that although the price of the linked assets has exceeded the observation range on day 2 and day 4, the assets have not been knocked out in the end. As noticed, the price is within the observation range at each observation time point (i.e. 04:00 every day), and users have obtained higher benefits. This is the advantage of using the Gate.io price observation mechanism.

How to view the price observation mechanism of specific products

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After entering the Gate.io structured products page, select any financial products and click "participate now" to enter the product details page. You can check the product rules and whether the price observation mechanism is used according to the following steps.


First, in the revenue rules section below the product basic information card, products using the observation mechanism will display two contents in the red box. Among them, red box ① indicates the reference price of the linked asset of the financial product, and the value is updated immediately; Red box ② indicates the index price observation time corresponding to the product. The observation time of the example in the figure is 12:00 UTC + 8 every day.

Secondly, in the part of transaction rules, the time of "interest calculation" on the time axis is the time when the whole observation mechanism starts. Taking the products in the above figure as an example, the starting time of interest calculation is March 30 and the observation time is 12:00 UTC + 8. In principle, the first day observation time should be 12:00 UTC + 8 on March 30. However, since the starting time of interest calculation of this product is 12:00 UTC + 8 on March 30, the first day observation time is adjusted to 12:00 UTC + 8 on March 31, and price observation is carried out at 12:00 every day to judge whether a knock-out occurs.

Finally, on the due settlement date of the product, the following rules will be used to judge whether the settlement date is knocked out, obtain the settlement price and calculate the income:
1. During the observation period, if the price at the daily observation time point does not exceed the observation interval, there will be no knock out (i.e. hit interval).
2. If there is no knock-out during the whole observation period, the opening price at the observation time point on the settlement day shall be taken as the settlement price of financial products and the income shall be calculated.
3. If knock-out occurs during the whole observation period, it shall be settled according to the fixed rate of return listed in the product rules.

Application examples of price observation mechanism

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On March 24, Gate.io two BTC / USDT structured products with perpetual contracts finally hit the high-yield range under the price observation mechanism, and obtained a yield of 15.50%. The product was sold at 16:00 UTC+8 on the 17th, the observation range was $39000 ~ $42840, the observation period was from 18 to 24, and the observation was carried out at 12:00 UTC+8 every day.


During the whole observation period, the maximum price of the BTC / USDT perpetual contract exceeded US $43000. However, since the price did not exceed the observation range at the observation time point, the product was not knocked out, and finally obtained a high-grade income.

Calculation formula:
Final annualized income
=3% + (opening price at 12:00 UTC+8 on the settlement day - lower limit price) / (upper limit price - lower limit price) * (16% - 3%)
=3%+(42693.00-39000)/(42840 -39000)*(16%-3%)
=15.50%

Conclusion

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Gate.io has always been committed to providing users with high-quality and safe services, constantly introducing new financial options to adapt to different scenarios and conditions, and helping users win higher returns with lower risks. In the future, Gate.io will continue to launch a variety of new structured products and services. Stay tuned!



Author: Gate.io Observer: Edward H. Translator: Joy Z.
Disclaimer:
* This article represents only the views of the observers and does not constitute any investment suggestions.
*Gate.io reserves all rights to this article. Reposting the article will be permitted provided Gate.io is referenced. In all other cases, legal action will be taken due to copyright infringement.

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