A rolling turbo is a financial derivative popular in Germany introduced by Goldman Sachs in 2004. It is tradable by institutional and private investors and has characteristics similar to contracts for difference and covered warrants.
The most important characteristic of a rolling turbo is the strict connection of its value to market prices either at the stock exchange or in the off-board trade of the primary security. The value of the underlying stock is multiplied by the leverage value to give the value of the rolling turbo. Unlike other financial derivatives, the leverage of a rolling turbo is kept constant on a daily basis. However the issuer can change the leverage by a predetermined fixed procedure.
The rationale of a rolling turbo arises from a combination of a predictable course process of the base value stock and the promise of a proportionally higher profit than would be possible with the purchase of the base stock. Rolling turbos also offer the possibility of speculating on falling quotations. On the DAX rolling turbos with leverages between 5 and 35 are offered.
Comparison to other financial derivatives
- Its lifetime is usually not time-limited.
- Unlike financial derivatives that are forced to terminate after severe exchange rate fluctuations, the risk of a catastrophic loss is smaller.
In Germany the profit that private investors make from a rolling turbo is subject to tax. The investor must also comply with the German § 37d securities trading law.