In Part 1 of this series, we noted that Structured Notes are highly customizable. This diversity can lead to financial hazards if the risks of these products are not well understood by the investor.
In Part 2 of this series, we had a more detailed and technical discussion, so that investors could get an in-depth understanding of how some of these products work.
The term “Structured Note” does not provide much information about the nature of the product. A “Note” has similarities with bonds: its valuation cannot go below $0, and it has credit exposure to the note issuer (i.e. you may lose all your capital if the issuer collapses, think Lehman Brothers).
“Structured” product could be principal protected (that means you will minimally get back your capital) or highly leveraged (and you may lose all your capital). The tenor could be 1 month, 10 years and longer, the underlying could be commodities, FX, equities, indices or funds.