Replication (economy)
In finance and stock exchange, replication describes the procedure with which financial products (e.g. certificates or exchange-traded funds ) map indices . A distinction is made between full (or physical ) and synthetic replication.
Full replication
With full (physical) replication, the provider of the fund or certificate actually acquires the value that the fund replicates. A fund that is supposed to map the price development of the DAX share index, for example , actually uses the funds of the fund to acquire shares of the companies listed in the DAX with the weightings contained therein. In the event of changes in the DAX, the shares of the exiting companies must be sold and those of the newly included companies bought. Since this has to be done within a short period of time, this can lead to significant price fluctuations in the values concerned.
Synthetic replication
Synthetic replication does not actually acquire the values held in the fund or certificate. Instead, the provider buys swaps on the stock exchange . These are structured and acquired in such a way that the performance of the swaps corresponds to that of the securities or securities behind them. A synthetic ETC on gold, for example, would not use the funds of the fund to purchase gold, but swaps on gold, which are structured in such a way that if the gold price rises, the ETC makes a profit through the swaps, but if the price falls, it makes losses, so that the performance of the synthetically replicating ETC also corresponds in percentage to that of the underlying.