Turbos are complex instruments and come with a high risk of losing money rapidly due to leverage. 7 out of 10 retail investor accounts lose money when trading turbos. You should consider whether you understand how turbos work and whether you can afford to take the high risk of losing your money.
Turbos and Traders (Knock-outs)
With Turbos and Traders (which are Knock-out products), you can indirectly invest in stocks, indices and other assets using leverage. This means potential higher gain but also potential higher loss. In the worst case investors may lose the entire capital they invested. There are additional financial risks associated with investing in these products, which can be found here.
Products providing for a Knock-out (“Knock-outs”), which include Turbos and Traders, are leveraged products. Generally, investors in Long-products are expecting an increasing underlying price, while investors in Short-products are expecting decreasing underlying prices.
Knock-outs provide for a leveraged participation in the performance of the underlying above (in the case of a “Long-product”) or below (in the case of a “Short-product”) the strike. For Turbos and Traders, the strike is adjusted on a regular basis to accommodate financing charges, based on the applicable interest rate, the financing spread, and the dividend payments on the underlying. Turbos and Traders are suitable for experienced and active investors who have knowledge of highly leveraged financial investment products and understand that changes in the underlying prices have an effect on the value of the Knock-out product, due to the leverage.
Knock-out products also feature a Knock-out level, often referred to also as barrier, which is equal to the strike in case of Traders. In case of Turbos the Knock-out level is above (Long-products) or below (Short-products) the strike. In the case of a breach of the Knock-out level, the product will be knocked out and the investor will receive 0.001 Euro in the case of Traders or, subject to the payment of a potential residual amount, zero in the case of Turbos, i.e. the investor may lose the entire capital invested. The Knock-out level is adjusted on a regular basis in case of Traders or at least once a month in case of Turbos.
In the secondary market Turbos and Traders usually behave as follows: Rising underlying prices generally increase the value of a Turbo Long or a Trader Long, whereas falling underlying prices generally reduce the value of the Turbo Long or a Trader Long. Vice versa, falling underlying prices generally increase the value of a Turbo Short or a Trader Short, whereas rising underlying prices generally reduce the value of a Turbo Short or a Trader Short. In addition, other factors such as implied volatility will influence the secondary market behaviour of Traders.
Example: If the price of the AEX rises, the value of an AEX-Turbo Long or an AEX Trader Long usually increases as well, whereas falling AEX prices usually reduce the value of a Long product. Vice versa, falling AEX prices usually increase the value of a Turbo Short or a Trader Short on the AEX, whereas rising underlying prices usually reduce the value of the Short product.
In the case of Turbos and Traders the issuer has the right to call in the products. Investors are usually entitled to exercise Knock-outs.
Potential total loss: Due to the leverage, high losses are possible. In the worst case, the total loss of the invested capital is possible.
Potential Knock-out event: In the case of a breach of the Knock-out level, the product will be knocked out and the investor will receive 0.001Euro in the case of Traders or, subject to the payment of a potential residual amount, zero in the case of Turbos, i.e. the investor may lose the entire capital invested.
Premium: Investors pay a premium in case of Traders, which covers financing costs as well as the costs of the gap and liquidity risk. The premium is not constant and may change over time depending on the market situation or product characteristics.
Change of leverage: The change of the underlying price changes the leverage of the Knock-outs.
Termination right of Issuer: The Issuer has the right to terminate the Turbos and Traders at short notice.
Issuer risk: A total loss is possible if the Issuer of the Turbos or Traders and the Guarantor, The Goldman Sachs Group, Inc., become insolvent.
Liquidity risk: Trading in the secondary market may be limited and investors bear the risk that they cannot buy or sell the products at any time and at a specific price (see information on Secondary Market for products issued by Goldman Sachs also here).