Structured Products
What Are Structured Products?
Structured products are hybrid financial instruments, created by combining multiple components (derivatives + traditional instruments) into a single investment.
They are tailor-made to offer a specific risk/return profile, often linked to the performance of one or more underlying assets (shares, indices, rates, currencies, raw materials).
They are used for:
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Protect your invested capital
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Generate conditional returns
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Expose yourself in a targeted way to certain market scenarios
How is a Structured Product Built?
Typically a structured product includes:
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A bond/equity component to partially or fully protect the capital
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A derivative component (options) to offer return potential linked to one or more assets
An example could be a product built on the Apple stock that refunds your capital after 3 years and offers you a 6% return only if the Apple stock has not fallen more than 30%.
Structured Products Key Characteristics
Conditional Yield
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They often only pay interest if certain market conditions occur.
Deadline set
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Typically 6 months to 5 years. Some have automatic early expirations (“autocall”).
Protected or partially protected capital
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Some products guarantee 100% of the capital, others only under certain conditions (e.g. not crossing a "barrier").
Flexible structure
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They can be custom built for specific goals.
Derivative component
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They use financial options, so they have non-linear behavior (they do not follow the market directly).
Advantages of investing in Structured Products
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Possibility of profit even in lateral or less directional markets
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Partial or total capital protection
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Customizable tools for specific needs
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Access to complex strategies in a single tool
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High coupons and yields in some scenarios
Main Risks
Market risk
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If the underlying asset goes down in value, you could lose part of your capital or receive devalued securities.
Issuer risk
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They are issued by a bank or financial institution. If the issuer goes bankrupt, you may not receive anything, even if the product has done well.
Barrier risk
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If the underlying asset crosses a certain threshold (barrier), the protection lapses.
Limited liquidity
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Some products are not easily sellable before their expiration or are barely traded.
Complex structure
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Understanding how it works requires some financial knowledge.