Structured products
Structured products are complex financial instruments that utilize a combination of different underlying assets and derivative instruments. In the following, we would like to provide you with an overview of structured products, explain how they work, and highlight the associated opportunities and risks.
What are Structured Products?
Structured products are customized financial products created by issuers. They typically rely on one or more underlying assets such as stocks, bonds, or commodities and use derivatives to create specific features and return opportunities.
Types of Structured Products
There are various types of structured products, including certificates, investment certificates, index certificates, and convertible bonds. These products offer different risk-return profiles and can be tailored to the specific needs of investors.
How Structured Products Work
A structured product usually combines an investment in the underlying asset with a derivative component. The structure may include features like capital protection, participation in the performance of the underlying asset, or leverage. The repayment often depends on the performance of the underlying asset during the product’s maturity.
Opportunities and Risks for Investors
Structured products offer a variety of investment opportunities. They allow investors to participate in different markets and asset classes without having to invest directly in individual securities. However, they are also associated with certain risks, such as issuer risk, market volatility, and complex product structures. Investors should carefully assess these risks and make investment decisions accordingly.
Selection Criteria for Structured Products
Before investors choose a structured product, they should consider various factors. These include the quality and creditworthiness of the issuer, the transparency of the product structure, costs, the product’s maturity, and the investor’s risk tolerance. It is important to thoroughly understand the terms and features of the product before investing.
Trading Structured Products
Structured products can be traded on stock exchanges or over-the-counter. Liquidity can vary depending on the product and market conditions. Investors should educate themselves about trading options and costs before deciding to buy or sell.
Conclusion
Structured products offer investors a wide range of investment opportunities and enable them to diversify their portfolios. However, investors should understand the risks and carefully examine the features of the products.