Products

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NetDania

The best alternative to expensive legacy systems for trading, news and analysis

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TTMzero

Fully digitized RegTech and capital markets software solutions

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FairXchange

State-of-the-art analytical tools for trading firms

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Athena Systems

Workflow automations for buy-side participants

Features

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OneChart

The ultimate charting framework for desktop and mobile applications

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Social Charts

Interactive client engagement tool that engages clients in conversation internally and online

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NetStation

User-friendly information and analysis terminal, deployable in multiple roles, including trading

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Data Feeds & APIs

Multiple APIs designed to ensure low latency and minimum resource usage

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Fair Value Pricing

Independent fair value pricing for added transparency where current prices are not readily available

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Evaluated Real-Time Market Data

Independent real-time market data feeds at a fraction of the cost

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Key Figures and Risk Indicators

Precise indications of the risk and return probabilities for financial products

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Financial Instruments Automation Platform

Reliable and cost-effective digitization process for securities and OTC trades

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Liquidity Management

Unparalleled insight into your trading with data visualization

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Spark OMS

Highly flexible Investment Management System

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Spark Risk

Manage your risk needs on a central platform

Did you know you can save 90% on market data?

Take a look at the “Definitive guide to Evaluated Real-Time Prices” to discover how you can save costs today.

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Structured products: A primer

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Investors have plenty of options when putting their money to work in financial markets. They can buy individual stocks, speculate using derivatives, or invest in entire ready-made portfolios. Structured products are an alternative way to invest, often used to supplement an existing investment strategy. Here’s how they work.

How do they work?

Most structured products have similar characteristics:

1. Fixed period of investment

An investor usually has to commit money for a set period of time. They only get to capitalize on any potential upsides once the end date is reached.

2. Risk-tailoring

These products are assembled to satisfy a wide range of risk profiles, depending on investors’ needs.

3. Principal guarantee

Most such products offer a degree of capital protection. In other words, investors are guaranteed to get back at least the nominal value of their initial investment. However, certain products offer no such guarantees and are therefore riskier.

Typically, structured products are combinations of asset classes with predictable returns and more speculative instruments. A classic example is a low-risk bond combined with a stock call option. Such an arrangement lets investors secure a minimal level of return on par with a bond. At the same time, it gives them a potential upside if the market is favorable and they can profitably exercise their call option.

Types of structured products

While there are dozens of different variations, they commonly fall into these three broad categories:

1. Capital-protected products

These types of products offer rather limited potential for any return on investment. Instead, as the name implies, they are used to protect capital during unfavorable market conditions (e.g. negative interest rates). Investors can secure returns comparable to deposit rates, with a minor upside.

The bond + option example above may well fall into this category of capital-protected products.

2. Yield-enhancement products

With this type of products, investors can choose to forego some principal guarantees to receive a higher return. Yield-enhancement products are more risky, but they allow investors to “bet” against the market. This way, investors can end up making profit while the stock market as a whole stagnates or goes down.

3. Leverage products

These products push both the risks and profit potential even further. Using leverage products, investors can achieve a rate of positive return that actually exceeds the increase in the value of the underlying asset itself. On the flip side, investors must also accept the possibility of losing the entirety of their invested capital.

How are structured products priced?

In a nutshell, the price of a structured product is the sum of what it costs to buy its individual components plus the premium charged by the issuer. Depending on the issuer, they’ll either charge their premium fee separately or “bake it into” the price structure of the product itself.

What are the benefits?

For the casual investor, these tailored products may make sense for a number of reasons.

1. Ease of participation

If you’re a trading professional, you’ll certainly be able to combine assets on your own to achieve the desired balance of risk and returns. But for the uninitiated, structured products offer a simple way to do the same without much effort or prior market knowledge.

Additionally, buying pre-packaged products may often grant an investor access to an asset class that they can’t purchase directly.

2. Downside protection

In general, you’re guaranteed to get your initial capital back,  unless you’re investing in the more speculative types of products. This compares favorably to buying stocks directly, as that makes you subject to the whims of the market without any true downside protection.

For this reason, structured products can be ideal for anyone looking to capitalize on potential market upsides without risking all of their money.

3. Flexibility

Because they can be assembled in so many ways using any combination of asset types, structured products are extremely flexible. They can be adjusted to fit your specific risk profile, include specific asset classes, or align with your predictions about future market trends.

4. Control over overall portfolio

Pre-packaged products are a way for investors to plug in holes in their investment portfolio or activate their money using the exact risk-return ratio they seek. Those with existing portfolios can hedge against unpredictable market movements. Others can capitalize on their market insights and predictions by e.g. securing positive returns in bear markets.

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What are the risks?

Few investments come without risks, and structured products are no exception. Here are the main risks and downsides people should take into account.

1. Liquidity limitations

With such products, your capital is tied up until the end date of the contract. This affects the liquidity of your assets and limits your ability to continuously reinvest money based on new information.

2. Market risk

Depending on the level of principal protection, investors will be exposed to market risk. This means it’s possible to lose some or all of your invested capital if the market takes an unfavorable turn.

3. Counterparty risk

Structured products are typically offered by investment or retail banks. They’re not backed by government bodies and are therefore subject to counterparty risk. What this means is that even if the product itself performs favorably, there’s always a risk that you won’t get your money. (Such as if the bank in question becomes insolvent or goes bankrupt altogether.)

4. Premiums

The main way issuers earn money on pre-packaged products is by charging a premium for the service of putting them together. While this isn’t a risk per se, it means investors have a higher cost and may lose money on products that otherwise break even.

5. Lack of price transparency

There’s no widely accepted standard for pricing structured products. As such, investors may have a hard time comparing alternative packages from competing issuers or with different combinations of assets. Issuers may also incorporate their own fees into the price of the product itself, which makes it even trickier for investors to fully understand its implicit cost.

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TTMzero: Automated solutions for capital markets

United Fintech's structured products tools

One of United Fintech's portfolio companies, TTMzero, provides high-quality real-time data and fully digitized regulatory and capital markets tech solutions that take clients into a new digital era.

To learn more about TTMzero's solutions, click on the products below:

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Products

Key Figures and Risk Indicators

TTMzero calculates about 100 key figures for structured products, including the Greeks and risk indicators, which provide precise risk and return probabilities.

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Financial Instruments Automation Platform

Digitize your issuance processes with TTMzero’s Financial Instruments Automation Platform (FIAP) to allow for a fast market launch of new products and ensure straight-through workflows. Also includes PRIIPs for KIDs.

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Evaluated Real-Time Market Data

Get a competitive edge - not just during volatile times - with highly accurate real-time prices across a wide range of instruments and asset classes.

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Fair Value Pricing

Meet your regulatory requirements with Fair Value Prices also for illiquid and hard-to-value financial instruments.

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