Bitpanda Stocks* is an innovative financial product and as such, we wanted to implement security measurements for our users to keep their investments safe. As we mentioned before, Bitpanda Stocks allows fractional stock investing* through a derivative contract. This also means that you don’t own the share per se as you normally would in traditional stocks investing. In this article, you’ll learn how this reduces counterparty risk compared to other derivatives.
What is counterparty risk?
First off, let’s clarify what “counterparty risk” actually means. It may sound complicated, but it’s actually pretty straight forward and, at a very basic level, describes the likelihood of one of the involved parties not being able to meet their responsibilities.
How are we able to reduce counterparty risk with Bitpanda Stocks?
With that in mind, we created a mechanism to reduce risk for Bitpanda Stocks users. If something happens to Bitpanda, you would then be able to get up to 100% of your investment back. Or, in other words: Bitpanda is the owner of your shares and ETFs but we significantly reduced the default risk you are exposed to.
This is how it works in more detail: Bitpanda is the issuer of the derivative contracts for the fractional shares and pledges the securities and the settlement deposit held by Bitpanda with the custodian bank to the customer.
If you acquire Bitpanda Stocks, you also agree to a pledge agreement which collaterises your investment. Since Bitpanda physically holds the underlying stocks through our partner, we are able to offer this form of pledge agreement for our customers. The pledge agreement is implemented as a means of security in the event of Bitpanda’s insolvency.
If that were to happen, the pledge agreement would allow Bitpanda to return up to the respective equivalent value of their Bitpanda Stocks to our users with preferential treatment over other creditors. This effectively means that you, as a customer, have preferential right to the equivalent cash amount of the Bitpanda Stocks you are holding.
What does this mean for me now?
Don’t worry, we are not going anywhere. But since Bitpanda Stocks is a relatively new way of investing, we want to make it as secure and safe as possible.
This might all sound technical, but with any financial investment that you are planning to make, we advise you to do your research and assess what level of risk you are comfortable with. To learn more about personal finances and investing, head on over to the Bitpanda Academy.
To learn more about Bitpanda Stocks, click here!
*“Bitpanda Stocks” is a new product from Bitpanda and allows you to invest in fractional shares/ETFs. “Bitpanda Stocks” are not shares, but a contract that allows you to participate in the price movements of certain shares, including any dividend distributions. It is neither tradable on stock exchanges nor on other trading venues, but can be resold to Bitpanda at any time under the conditions set out in the general terms and conditions and the contract. Further details on this product, the issuer and the relevant risks are available in the prospectus at bitpanda.com.