Structured products are complex financial instruments that utilise a combination of various underlyings and derivative instruments. In the following, we would like to give you 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 warrant bonds. These products offer different risk-return profiles and can be tailored to the specific needs of investors.
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How Structured Products Work
A structured product usually combines an investment in the underlying asset with a derivative component. The structure can, for example, offer a capital guarantee, participation in the performance of the underlying or a leverage effect. The repayment often depends on the performance of the underlying asset during the term.
Opportunities and Risks for Investors
Structured products offer a wide range of investment opportunities. They enable investors to participate in various 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 weigh up the risks and make their investment decisions accordingly.
Selection Criteria for Structured Products
Before investors decide in favour of a structured financial product, they should consider various factors. These include the quality and creditworthiness of the issuer, the transparency of the product structure, the costs, the term of the product and the investor's risk tolerance. It is important to fully understand the terms and features of the product before investing.
Trading Structured Products
Structured products can be traded on the stock exchange or over the counter. Liquidity can vary depending on the product and market environment. Investors should inform themselves about the trading opportunities and costs before deciding to buy or sell.
Conclusion
Structured products offer investors a wide range of investment opportunities and allow them to diversify their portfolios. However, investors should understand the risks and carefully scrutinise the characteristics of the products.
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