Prologue: Discovering a Different Way to Trade

“AI stocks have surged nearly 20% recently. I really want to buy more, but the price is so high now…” Ada stared at the chart on her screen, feeling both excited and anxious.

“I’m thinking of reducing my position; it feels like it’s nearing the top,” Jane said calmly, preparing to lock in her profits gradually.

At that moment, Tom and Jerry both chuckled.

“Ada, maybe you should consider an Accumulator,” Tom suggested.

“Jane, a Decumulator might be worth trying,” Jerry added.

The two women exchanged glances, their eyes filled with curiosity: What are Accumulators and Decumulators? How are they different from directly buying or selling stocks?

‍

What is an Accumulator?

Tom grabbed a whiteboard marker and wrote: Accumulator = Accumulative Option

“In simple terms, it’s a structured product that allows you to buy stocks in batches over a period at a pre-agreed price. If you’re bullish on a stock’s long-term growth but find it too expensive to buy all at once, this lets you enter the market gradually.”

Ada blinked and asked, “Isn’t that like dollar-cost averaging?”

“It’s somewhat similar to regular investments, but the difference is that Accumulators often offer a discounted price, with the strike price typically 10% to 30% below the market price depending on market factors like volatility and product parameters. In other words, you buy stocks at a cheaper price, which seems like a great deal.”

He paused, his tone turning serious.

“But the risk is, if the stock price drops, you’re still obligated to buy at the strike price. For example, if the market price falls from 100 to 70, you’d still have to buy at 95 HKD daily, leading to losses that grow with each purchase.”

‍

Case Study: Ada’s AI Dream

Assume that Ada was optimistic about the US stock market at the beginning of the year and wanted to go long on the index. At that time, the current price was about US$588. She believed that the stock price was unlikely to fall below 90% of the current price (about US$530) and expected it to rise in the long term. Jerry suggested to her to set up an Accumulator:

• Strike Price: USD 530 (75% of the spot price)

• Daily Accumulation: 1,000 shares

• Contract Term: 1 year

• Knock-out Price: USD 617 (110% of the current price, approximately a 10% increase to trigger termination)

*This content is for illustrative purpose only, and does not constitute an offer, an invitation, or a recommendation to enter into any transaction.

According to the chart data, from the beginning of 2025 to July 2, the stock price was only below US$530 for eight days (the lowest was US$496), triggering the double buy obligation. However, in the long run, the average closing price was about HK$580, which means that Ada bought at US$530, saving about 8.7% per share on average (126.51 - 103.72). The contract was struck ahead of schedule on June 30, with a cumulative purchase of approximately 132,000 shares at a total cost of approximately US$69.96 million, saving approximately US$6.6 million. She can now choose to set up a new low-buy Accumulator or switch to a Decumulator for a high sell to further optimize her profits.

‍

Accumulator Mechanics

Accumulators are typically over-the-counter (OTC) products, with contracts signed between the investor and a bank or broker. The contract specifies the daily purchase volume, strike price, term, and may include a “knock-out” clause. If the stock price hits a predefined high (knock-out price), the contract may terminate early, allowing the investor to lock in profits.

Additionally, Accumulators may involve “gearing” (leverage), amplifying both gains and losses. For instance, with 2x leverage, a 10% stock price increase could yield a 20% return, but losses would also double in a downturn.

‍

What is a Decumulator?

Jerry explained to Jane: Decumulator = Accumulative Put Option

“It’s the opposite of an Accumulator. It allows you to sell stocks in batches over a period at a pre-agreed price. If you believe the stock is unlikely to rise significantly beyond 125% of its current price, you can lock in profits now at a premium.”

Jane’s eyes lit up. “So, if I think the stock is near its peak and won’t climb much higher, a Decumulator lets me sell gradually at a favorable price, avoiding a potential drop?”

“Exactly,” Jerry replied. “It’s ideal for securing profits while minimizing the market impact of selling a large position.”

‍

Case Study: Jane’s AI Exit Plan

Jane holds a stock that generates stable dividends, with a recent strong price increase, currently at 50 HKD (52-week high). She wants to take some profits while switching to buying if the price drops to 45 HKD (a reasonable range). She sets up a Decumulator:

• Strike Price: 60 HKD (120% of the current price of 50 HKD, offering a 20% premium)

• Daily Sell Volume: 200 shares

• Contract Term: 6 months

• Knock-out Price: 45 HKD (90% of the current price; if it falls to this level, the contract terminates, allowing a switch to buying)

If the stock price stays above 45 HKD, she sells at 60 HKD. Assuming a cost basis of 30 HKD per share, she earns a profit of 30 HKD per share. Over 6 months (approximately 130 trading days), she sells about 26,000 shares, totaling approximately 780,000 HKD in profits, enjoying a 20% premium for higher returns. If the price drops to 45 HKD and triggers the knock-out, she can terminate the sell and switch to buying at a lower price to optimize her strategy.

However, if the stock unexpectedly rises to 65 HKD, she would only sell at 60 HKD, missing out on an additional 5 HKD per share in potential gains.

‍

Decumulator Mechanics

Like Accumulators, Decumulators are OTC products with flexible terms tailored to the investor’s needs. For example, investors can set a “knock-in” price, where the contract only activates if the stock price rises to a certain level, protecting sellers from selling too early.

Decumulators may also include a “protected period,” during which selling obligations persist despite price fluctuations, offering greater flexibility.

‍

Why Not Just Buy or Sell Directly?

Ada voiced a common question:

“If I’m bullish, why not buy all at once? If I’m bearish, why not sell everything immediately? Isn’t that simpler?”

Tom responded earnestly:

“Buying or selling all at once can cause issues:

1. Market Impact: Large transactions can cause significant price swings, reducing transaction efficiency. For example, a large buy order might drive up the price, increasing costs, while a large sell order could crash the price, cutting profits.

2. Cash Flow Management: Buying all at once requires full capital upfront, whereas Accumulators allow staggered cash flow allocation.

3. Emotional Discipline: Gradual transactions reduce the risk of going “all in” and help avoid missing opportunities for phased adjustments.

4. Price Advantage: Accumulators offer discounted buying, and Decumulators provide premium selling—benefits not available in direct trades.”

Jerry added:

“For sellers, it’s similar. If you hold a large position, reducing it gradually stabilizes the price and prevents the market from detecting a major sell-off, which could trigger panic selling. Decumulators are perfect for this.”

‍

When to Use Accumulators or Decumulators?

Ideal Scenarios for Accumulators

• You’re optimistic about a stock’s long-term growth but expect short-term volatility.

• You want to build a position at a lower cost with a discounted price.

• You lack the capital to buy a large position outright or prefer to spread out cash flow.

• The market has low liquidity, and direct buying could inflate the price.

Ideal Scenarios for Decumulators

• You’re bearish or satisfied with current gains and want to lock in profits gradually.

• You aim to sell at a price higher than the market rate.

• You hold a large position and want to avoid market disruption from a single sale.

• You prefer flexibility, such as setting knock-out or knock-in clauses.

‍

Advanced Strategies for Accumulators and Decumulators

Combining with Other Instruments

Accumulators and Decumulators can be paired with other derivatives, like options or futures, to create sophisticated strategies. For example:

• Accumulator + Put Option: Ada could use an Accumulator to buy AI stocks gradually while purchasing put options to hedge against price drops.

• Decumulator + Call Option: Jane could use a Decumulator to sell stocks while buying call options to retain upside potential.

Risk Diversification

To mitigate single-stock risk, investors can set up Accumulators or Decumulators across multiple stocks, creating a diversified portfolio. For example, Ada could establish Accumulators for AI, semiconductor, and renewable energy stocks to spread market risk.

‍

Advantages and Risks of Accumulators and Decumulators

Advantages

• Gradual Market Entry/Exit: Reduces execution risk and minimizes the impact of single-point price volatility.

• Price Benefits: Accumulators offer discounted buying, and Decumulators provide premium selling.

• Flexible Design: Contracts can be customized with knock-out, knock-in, leverage, or other terms.

• Capital Efficiency: Staggered buying or selling eases cash flow demands, ideal for long-term strategies.

Risks

• Unlimited Loss Risk: If the stock price crashes, investors must continue buying at a strike price above the market, potentially leading to massive losses.

• Complexity: Terms like knock-out levels, leverage, protected periods, and settlement methods require deep understanding.

• Counterparty Risk: As OTC products, investors rely on the counterparty’s (bank or broker) ability to fulfill the contract.

• Liquidity Risk: Unlike exchange-traded stocks or options, exiting OTC contracts may incur additional costs.

• Longer Contract Tenors and Passivity: Accumulators and Decumulators typically involve longer contract periods (e.g., 6, 12, or 18 months), increasing exposure to market volatility and unforeseen events. Their passive nature further reduces flexibility, as investors are bound by pre-set terms once the contract is signed, limiting the ability to adjust strategies dynamically. This requires careful assessment of long-term markettrends and personal risk tolerance from a risk management perspective.

Epilogue: The Outcome

Ada opted for an Accumulator, steadily building her position in the AI sector. She understood the risks but valued the lower-cost entry and cash flow flexibility.

Jane, through her Decumulator, gracefully locked in her profits while reserving capital for future investments. She learned how to exit positions while minimizing market impact and protecting her portfolio.

Guided by Tom and Jerry, both realized there’s no such thing as a “free lunch.” Every financial tool is a double-edged sword; success lies in skillful use and aligning strategies with personal goals and risk tolerance.

‍

Investment Insights

In the financial markets, Accumulators and Decumulators are powerful tools for asset allocation and risk management. Buying or selling isn’t just about price—it’s about strategy. Mastering the rhythm of capital flow is often more critical than chasing low buys or high sells to becoming a seasoned investor.

These structured products aren’t for everyone. Investors must fully grasp their mechanics, risk exposure, and align them with their financial situation and market outlook. As Ada and Jane’s story shows, successful investing stems from knowledge, discipline, and respect for risk.

In your future investment journey, whether using Accumulators, Decumulators, or other tools (for more insights, check out our previous article: Understanding Structured Products Series 4: Julie’s Marvelous Association with Snowball), remember: every decision is a learning opportunity. Choose strategies that suit your goals to navigate the markets with confidence.

‍