CFDs and Turbo Certificates are very similar financial products but with a few differences that a good trader should understand and assimilate. What are the differences between these two leveraged products?
What are the differences between a turbo certificate and a CFD?
CFDs (Contracts for difference) and turbo certificates can be defined as leveraged financial products that allow speculating up and down on the value of an underlying asset (a share, an index, a commodity or a currency pair), by following its fluctuations in the financial market. While these two products have strong similarities, they are not intended for the same types of traders, taking into account the level of risk and the objectives pursued.
What is a CFD?
A CFD or contract for difference is a leveraged financial product that allows you to speculate on the difference in price of a financial asset (indices, stocks, currencies, bonds, ETFs and commodities) between when your position is open and when it is closed. In addition to being traded over-the-counter, CFDs have no expiry date and may result in a loss greater than your margin or hedge (the value of the minimum initial capital required to open the position). Note that it is possible to limit your losses with CFDs by using a guaranteed stop.
Trade over 17,000 stocks, including stocks, indices and currency pairs, via CFDs by opening a demo or live account on IG’s online trading platform.
What is a turbo certificate?
A turbo (also called a turbo warrant or turbo certificate) is a leveraged product negotiable on financial markets and which allows speculation on the rise (turbo call) as well as on the fall (turbo put) on several underlying assets.
Turbos are traded on stock exchanges and not over-the-counter, which makes it easier to calculate their price and control market sentiment. The risks of turbo loss are limited with the inclusion of a “knockout” or deactivating barrier that automatically closes your position when crossed. In this case, the turbo certificate expires and the trader loses his capital.
Find out what Turbo24s are and how to trade them with IG right now.
IG offers you to trade the stock markets with the Turbo24, the first turbo warrant listed in euros, tradable 24 hours a day from Monday to Friday outside the opening hours of the stock market, by opening a risk-free demo account or a real trading.
What are the differences between CFDs and turbo certificates?
Turbo Certificates are tradable on the stock exchange and can only be purchased through a broker or bank. They have an “International securities identification number” (ISIN) and a security identification number (WKN). CFDs, on the other hand, which are traded over-the-counter, do not have an identification number.
The price of a turbo certificate is more transparent because it is a listed product
While the costs relating to turbo certificates cannot be individually broken down, those of CFDs including funding costs, spread and margin can be presented in a clear and transparent manner.
Turbo certificates include a deactivating barrier that prevents losing more than your initial investment, even with high leverage. CFDs do not have this deactivation mechanism, which sometimes results in losses beyond the initial capital invested. A trader can however associate a guaranteed stop with each position to limit his losses on CFDs.
By investing with turbo certificates, a trader is exposed to issuer risk, a risk that does not exist when trading with CFDs.
Turbo certificate vs CFDs: what is the best financial product to trade?
Leveraged financial derivative products like turbo certificates and CFDs are risky products that are not intended for investors with the same profile. These two products, although having similarities, have particularities that require solid stock market knowledge, and some risk control on the part of the trader.
An investor will have the choice between trading Turbos and CFDs depending on their experience, budget, underlying trading scenario, investment strategy and risk appetite.
Turbos and CFDs allow you to take a position on an underlying, with leverage and a risk of capital loss. These two financial products have specific characteristics that the investor should know and understand. The choice between trading an underlying asset using the turbo certificate or the CFD depends on factors specific to the trader, such as the degree of risk or his investment strategy.