What are turbo certificates?
Turbo certificates are exchange-traded leverage products. Every turbo certificate, also sometimes referred to as turbo warrants, is based on an underlying that the certificate reflects one-to-one. In addition to indices, shares and currencies, investors can also participate in the price development of commodities.
The price development of the underlying is exactly reproduced by the turbo certificate. In contrast to warrants, the volatility of an underlying asset is irrelevant. If the base value increases, the value of the turbo certificate also increases to the same extent. However, if the price of the underlying falls, the turbo certificate also follows this price development one-to-one.
The great advantage of turbo certificates compared to a direct investment in the underlying on the stock exchange lies in the leverage. Investors can move larger sums of money with a significantly lower capital investment. Turbo certificate investors therefore participate disproportionately in the price development of the underlying.
A turbo certificate is financed on the one hand by the capital investment of the certificate buyer plus fees and on the other hand by a type of credit that the issuer (e.g Vontobel* or Societe Generale*) of the product takes over. The purchase price is divided between the investor and the issuer – the issuer of the turbo certificate, however, allows the buyer to pay interest on this loan: Issuers usually demand a premium on the purchase price of the turbo certificate. This premium (in the case of short turbos discount) is continuously reduced over the term of the turbo certificate. If investors part with their product early, they get back part of the premium they paid when they bought it from the issuer.
Our recommendation: Unlike when buying shares, for example, a turbo certificate allows you to earn money even when the stock market is weak. Because investors can bet on both rising (bull or long certificate) and falling (bear or short certificate) prices.