How to insure yourself against possible losses when investing on the exchange: structural products

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The main stop factor that most often stops people from trying to invest on the stock exchange on their own is the fear of losing money. There is always such a risk, and it must be taken into account. However, the investment sphere is developing, and in recent years, ways have appeared to seriously reduce the risks of financial losses or eliminate them altogether. One of the tools to achieve this is structural products .
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Today we’ll talk in more detail about how they work, why they minimize or even eliminate risks, and how much a passive investor can earn from this.

Note : the text will focus on investments on the Moscow Exchange using the services of licensed brokers, whose work is controlled by the Central Bank. The topic of structural products has nothing to do with working on Forex and other types of financial activities.

How it works

Structural products - in essence, these are different financial instruments collected in a single portfolio. They are selected in a certain proportion to ensure either minimal or zero risk when investing on the stock exchange.

For example, 90% of a product can be risk-free assets, such as federal loan bonds with guaranteed income, and 10% can be shares of a company that can both rise in price or lose value. The meaning of such a product is that a possible loss on shares will be offset by guaranteed income on the second asset. If the stock price rises, then the profit will be even higher.

Structural products have various parameters that may vary, among them:

• number of assets - you can invest in one asset or in their combination;
• the minimum amount of investments - a conditional 300 thousand rubles is enough for one strategy, and maybe not enough for another;
• product term - for how long is the strategy designed;
• level of capital protection - partial, full, conditional;
• participation rate in the product - by how many percent do you participate in the growth / fall of the asset (if the ratio = 70%, and the price of the underlying asset has changed by 10%, then your profit will be 7%).

Examples of structural products + how much you can earn on this

In practice, to show how structural products work, the easiest way is to use real-life examples of real trading strategies from our analysts for July-August 2019 (they are constantly updated).

So, here are the parameters of a structural product with a capital protection level of 100%, and the underlying asset of which are Sberbank shares:



Here's how it works in practice:

1. If at the time of repayment of the product, the value of the price of the underlying asset is lower than the “Initial price”, then the investor receives the full amount of back investment.
2. If at the time of repayment of the product the value of the price of the underlying asset is higher than the "Initial price", but lower than the "Barrier price", the investor earns participation in the growth plus receives the back capital in full.
3. If at the time of repayment of the product the value of the price of the underlying asset is higher than the “Barrier price”, the investor earns the maximum yield in percent per annum plus receives the back invested capital in full.

Such strategies can be implemented not only with the help of stocks, but also for example currencies.

The maximum profitability of strategies for July-August is 20% - the yield on ruble bank deposits in the same period, on average, will not exceed 9%.

Can I create my own structural product?

Yes, it can be done. In fact, if you invest a conditional one hundred thousand or a million rubles in the proportion of 90% to 10%, where the first part is a deposit in a bank, and the second is the purchase of shares, then this will be a structural product.

In this case, it will be possible to establish stop loss orders at the level of 80-90% of the share purchase price. In this case, the possible loss on the shares will be offset by interest on the deposit. That is, you can achieve a low risk strategy. In a good scenario, if the shares rise in price, you will receive both a profit from the deposit and income from the sale of shares.

Why then do you need broker products

There are two answers. The first is banal convenience. When creating a structural product on their own, an investor must open an account with a bank and a broker, transfer money to them, buy / sell shares, etc. In the case of an investment in a finished structural product, all operations need to be completed only once, and then just wait for the profit.

In addition, it will be difficult to independently implement a structural product for a complex trading strategy. For example, using products compiled by analysts, you can earn money, for example, by betting on a change in the price of an exchange asset (stock or index) in one direction or another. Strategies such as working with indices are impossible without the use of more complex tools than stocks - options, futures, shares in mutual funds.

Analysts of the brokerage company are constantly developing new strategies, their list is expanding, it is extremely difficult to come up with as many investment options yourself - if you are not a professional trader.

Conclusion

In general, structural products are a good tool for those who want to start investing on the stock exchange, but still do not have large-scale knowledge on the topic and want to limit the risk of losses, and it is better to eliminate it altogether.

This investment tool allows you to achieve a 100% level of capital protection, while maintaining the chances of a profit higher than the interest on deposit in the bank. At the same time, without unnecessary difficulties - to start working with a structural product, you only need to open an account online and give the appropriate order in the personal account of the brokerage system.

That's it for today, thanks for watching! We will be happy to answer all questions in the comments.

Other materials on the topic of finance and stock market from ITI Capital :

• Western Market Securities Analysis Tool
• Model portfolios for investments in foreign and domestic stocks
• Analytics and market reviews
• Purchase of shares of American companies from Russia