Although CFDs and turbo certificates seem very similar, these two financial derivatives differ in many ways.
Derivatives are particularly widespread in the financial markets. They all share the same basic function, but can be difficult to distinguish from each other in order to choose one for your investment strategy. Amongst all these products, CFDs and turbo certificates share many similarities, but are not suitable for exactly the same trader profiles. Depending on experience, budget, risk aversion and specific objectives, informed investors are advised to choose one or the other.
Here's a comprehensive summary of the information you need to choose the right financial derivative for your investment style.
Contracts for Difference (CFDs) and turbo certificates are financial derivatives, which allow you to speculate on the value of an underlying asset by replicating its price movements. This asset can be a stock, a stock index, a commodity or a currency. As derivatives, CFDs and turbos have no real economic value; theirs depends on the value of the underlying financial asset.
Both CFDs and turbos allow investors to speculate on the rise and fall of the financial markets. In addition, they allow investors to use leverage - sometimes very high - to multiply potential gains.
Turbo certificates are traded on exchanges - which allows each certificate to have an International Securities Identification Number (ISIN) and a security identification number - and investors typically buy them through brokers, unlike CFDs. CFDs are traded over the counter. In fact, the price of turbo certificates is more transparent than that of CFDs - being listed products - which allows investors to anticipate their orders more confidently.
When investing in turbo certificates, traders are exposed to issuer risk, which is not the case with CFDs.
The costs of investing in CFDs are particularly clear : the main costs of funding, margin and spread are transparently presented. Conversely, as the costs of turbo certificates cannot be broken down individually, the amounts are more unclear to the investor.
CFDs and turbos are therefore similar : both are derivative products that allow investors to speculate on the price fluctuations of an underlying asset and to use high leverage to maximise their profits. However, there are also several differences between the two types of products, so the choice of one or the other depends mainly on the investor's profile (including experience and risk aversion), as well as their objectives (budget, capital gains objectives, etc.).