Derivatives · Intermediate · 4 min

Knock-outs and turbos

You can explain how turbo certificates create leverage, what happens when the knock-out barrier is touched, and what BaFin's data shows about results.

Right and still at zero

A trader expects a share to rise and buys a turbo certificate. Over the next week, the share does rise. The turbo is worth nothing.

This is not a rare accident. It is how knock-out products work, and it explains a large part of the losses regulators have measured. This lesson explains the mechanics of turbos and the barrier that ends them.

Touch the line, game over

A turbo certificate, also called a knock-out, is a leveraged product issued by a bank. A long turbo gains when the underlying rises, a short turbo when it falls.

Its key feature is the knock-out barrier, a fixed price level. BaFin describes it this way: if the underlying reaches the barrier during the product's life, the turbo expires immediately and, as a rule, becomes worthless.

How the leverage works:

The turbo's price is roughly the distance between the underlying's price and the barrier, adjusted for the ratio and financing.
The closer the barrier, the cheaper the turbo and the higher the leverage.
The closer the barrier, the smaller the move needed to knock it out.

Three consequences:

No recovery. BaFin stresses that even with a correct long-term view, a brief crossing of the barrier can lead to a total loss, even if the underlying later recovers.
Constant monitoring. BaFin notes that investors must watch their position continuously, which makes turbos suitable only for very short holding periods.
Issuer risk. As with all certificates, the issuer's solvency matters.

BaFin's market study for 2019 to 2023 found that 74.2% of retail investors lost money with turbos, on average 6,358 euros each, 3.4 billion euros in total. In October 2025, BaFin issued a product intervention requiring a standardized warning in marketing and sales that seven out of ten retail investors lose money with turbo certificates.

Dip to 99.40, then 106.50

A fictional share trades at 105. A trader buys a long turbo with a knock-out barrier at 100.

Day 2: the share slides to 102. The turbo loses more than half its value.
Day 3: in the morning, a large sell order pushes the share to 99.40 for a moment. The barrier at 100 is touched. The turbo ends.
Days 4 and 5: the share recovers to 106.50.

The trader was right about the direction. The barrier, 5% below the starting price, was within the share's normal daily range.

Common mistakes

Choosing the barrier closest to the price. Highest leverage, highest knock-out risk.
Holding turbos for weeks. BaFin describes them as products for very short holding periods.
Treating the barrier as a stop. A knock-out usually means a total loss, not a controlled exit.
Ignoring gaps. Overnight moves can jump past the barrier.

The takeaway

Turbos give leveraged exposure and end immediately when the price touches the knock-out barrier, usually with a total loss, even if the price recovers.

Check yourself

Quick quiz

4 questions. Instant feedback, nothing is saved.

1Tap the candle in which the long turbo was knocked out.

Tap the chart.

The low of 99.40 touched the barrier at 100. The turbo ended immediately, even though the price closed above it and later rose.
2A long turbo has a knock-out at 100. The share falls to 99.90 for a minute, then rises to 110. What happens?

BaFin's example: a brief crossing of the barrier can cause a total loss, even if the underlying later recovers.
3What share of retail investors lost money with turbo certificates from 2019 to 2023, according to BaFin?

BaFin's market study found 74.2% lost money, 6,358 euros on average, with total losses of 3.4 billion euros.
4Why does a turbo with a barrier close to the price have high leverage?

A small price with full exposure means high leverage, and a short way to the knock-out.

of 4 correct.