New Leveraged Trading Products in Light of CFD Restrictions

Our colleagues at Finance Magnates have reported on an interesting financial instrument that can be used for trading in similar ways to Contracts for Difference (CFDs), which have become popular among European traders. The product is called Turbo Certificates and has actually been used by traders in certain countries in Europe, such as Germany, Belgium and Austria, where certificates are a long-established product and are a core offering of banks. However, increasingly, brokers which traditionally offered forex and CFDs, have been entering into this space.

Turbo certificates allow traders to make money from market fluctuations with leverage, they have a built-in stop loss, and positions are automatically closed once a predetermined price level is reached. For example, Turbo Long Certificates allow you to benefit from rising prices, whereas Turbo Short Certificates benefit from falling prices.

In particular, CFDs are closer to futures with the risk of unlimited losses when prices move against the investor, turbo certificates are closer to options where loss is effectively restricted to the premium paid.

Turbo certificates were not included in the ESMA regulations passed previously, but regulators at ESMA, on the other hand, have said that the investment product is exempt for the restrictions due to the fact that it has different product features. Namely, Turbos are not margined products and investors can’t change the leverage of the Turbo certificate, they don’t have a contingent liability for retail clients and they’re typically listed and traded on a regulated market or MTF.

With certain brokers, including IG Group offering the products now, it will be interesting to see if these financial instruments take shape within the FX and CFD industry.