Dutch regulator voices concerns about risks associated with turbo trading

Maria Nikolova

Turbos were spared from ESMA’s product intervention measures but these instruments are causing heavy losses to retail traders, the Dutch Authority for the Financial Markets warns.

The Dutch Authority for the Financial Markets (AFM) has published the results of a study of the market for so-called “turbos”.

Turbos (also called speeders, sprinters or something else) are leveraged products. Investors use them to speculate on a decrease or increase in the price of an underlying asset such as a share, index or currency. The underlying asset is largely financed with borrowed money.

The data show that, in turbo trading, 68% of retail investors suffered losses in the period from June 1, 2017 to July 1, 2018. On average, investors lost €2,680. The Dutch regulator considers the finding worrying. The AFM expects the turbo industry to assume responsibility and to reduce the risks for the retail investor.

For its study the AFM looked into the results of 3.9 million orders. Other findings are:

  • The average return per transaction was negative: -€38 (-2.9%).
  • Higher leverage leads to higher losses. For leverage above 100, the average return per transaction is -8.6%.
  • The percentage of investors suffering a loss increases with the number of transactions per investor. 88% of investors with more than 500 transactions suffered a loss. For investors with less than 10 transactions, the percentage was 64%.
  • Turbos are held for a short period: 56% of all turbos are sold within 24 hours.

The regulator calls on the turbo industry to share solutions for reduction of risks with the AFM. Solutions can be send to [email protected] until April 30, 2020 at the latest.

In the second half of 2020, the AFM will decide on its follow-up approach regarding the risks involved in trading turbos.

Let’s recall that, back in the summer of 2018, ESMA said that the temporary product intervention measures will not apply to turbo certificates and structured finance products. ESMA explained that turbo certificates are not within the scope of the rules because, although similar to CFDs, they have different product features.

The UK Financial Conduct Authority (FCA) has voiced its concerns about turbos. The UK regulator said it fully supported ESMA’s measures, which are aimed at protecting retail investors. And yet, the FCA said it was aware that other products can create the same kinds of risks to consumers as CFDs, particularly where they expose the investor to significant leverage. When introducing its national product intervention measures, the regulator said they applied to turbo certificates too.

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