The Retail Investor's Best Guide To Structured Trades

By Author: Danny Sulliva
Total Articles: 23
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There was a period when retail investors experienced a cal investment climate that was largely characterized by a class of honoree asset managers who at that time formulated efficient portfolio for their high-end clients around a well close monitored range of high-quality debt and equity instruments. We noticed a change to all this caused by an increase in the number of retail investors class.

One of the notable additions to the class of institutional portfolio is a group of investment fondly called structured trades and has been able to gain close attention lately from industry watchers as well as investors.

In the investment world, structured product can also be termed market-linked product, it can be defined as a holistic investment package based on derivatives, like options, commodities, security basket, single security, swaps, foreign currencies and debt insurances. Structured products is a mixture of simpler financial tools that are intertwined by ‘structures' in financial organizations, leveraged by a class of investors who participate in product pricing, legality, accounting, marketing and sales. ...
... These kinds of products may include assets such as stocks and bonds, simple derivatives such as vanilla options and credit default swaps, some of which have been lashed out to reasons for the current financial crisis.

The wide spectrum of products explained above is indicative of the fact there's hardly no uniform definition of a structured product. A basic feature of most structured products is that of principal gurantee function, which allows the protection of the equity if held to maturity. If for instance a retail investor invests $200, the issuer would invest in a risk free bond with adequate interest to yield $200 after the define period of investment. The bond in question might cost $270 right now and within the defined investment period it would grow to $200. The remnant funds allows the issuer get the options and swaps necessary to carry out whatever the investment may entail. This means that a retail investor can do this without help, but transaction cost and volume requirement of some options and swaps out there are beyond a lot of individual investors.

Within this frame we can adequately say that structured products were made to meet defined needs of retail investors that are difficult to be met by regular financial instruments out there. This is why structured products can now be used as alternative to direct investment, as a means of assets allocation to reduce portfolio to risk exposure, or the utilization of current market trend.

A vivid understanding of structured products for retail investors would help them create wise investment choices and stay off risk which they cannot subscribe to. This means that investors have to know if capital losses are eminent, the maximum loss that can be incurred and the chances under which this is possible. We at London Pearson consider the issue capital protection of retail investors as our priority.
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