BaFin Reveals Investor Losses on Turbo Certificates

BaFin, Germany’s financial regulator, revealed worrying results about retail investors trading turbo certificates. It said in recent years, about 74.2 percent of these traders lost money trading these turbo certificates.

The regulator added that the average loss per investor was around €6,358 during this five-year period. Total losses for investors exceeded €3.4 billion.

Turbo certificates are high-risk financial products that work like contracts for differences. They allow traders to gain exposure to markets such as stocks and currencies, but come with the risk of fast losses. BaFin said these products are complex and can be dangerous for most retail investors. The European Union has already placed strict regulations on similar products like CFDs due to their risks.

BaFin Warns That Many Turbo Certificates Use Different Names That Hide Risks

According to reports, turbo certificates are often sold under different names such as “Mini-Futures” or “Wave XXL.” BaFin said these alternative names can hide the risks and confuse many investors. It warned that the lack of clear information might mislead people who do not fully understand the product. This confusion increases the chance of poor investment decisions.

Turbo certificates include a knock-out feature that causes the product to expire and become worthless if a certain price level is reached. This means investors can lose their entire investment very quickly. BaFin said that while there is potential for large profits, the full investment can disappear just as fast. The regulator stressed the importance of understanding these risks to avoid heavy losses.

BaFin’s review covered about 113 million trades made by 543,000 German investors over five years. The study excluded trades by foreign platforms and non-German residents to focus on activity within the European Union. BaFin said this gave a clear picture of the local market and its risks. The data provides insights into how retail investors are affected by these complex products.

BaFin Reports Quick Increase In Number Of Traders

The number of retail investors trading turbo certificates has more than doubled in recent years. BaFin said approximately 231,000 retail traders were active in Germany two years ago. This represented a 110 percent increase compared to 2019 levels. The regulator added that total purchase values reached €195 billion during this period.

BaFin pointed out that a small number of issuers dominate the market for these products. It said over 75 percent of transactions came from the top five providers. Of the 1,294 intermediaries involved, most trading was carried out by only a few firms. According to the update, 1,147 of these intermediaries were based in Germany.

The study found a strong link between trading frequency and investor losses. BaFin said investors who made 1 to 10 trades lost money 70 percent of the time. For those with more than 1,000 trades, the loss rate rose to 91 percent. The regulator warned that frequent trading often leads to larger losses.