Currency linked Structured Products are great

Structured products have gained in popularity as an additional investment tool for portfolio management. In our previous articles, we introduced structured products and discussed their key features. We also mentioned equity-linked structured products, which are the most widely distributed category of structured products. However, there are other underlying asset classes available for structured products, such as currencies, which provide an opportunity for a forex strategy through structured products.

Forex structured products offer investors a great deal of flexibility in terms of investment horizon, ranging from very short term (from one week) to medium and long term. They can also be used for various financial goals, including yield search, exposure to a country or a financial sector through currencies, and hedging purposes. Additionally, forex structured products allow for any kind of investment strategy, whether bullish, bearish, stable, or range, due to the bi-dimensionality of the underlying currency pair, which has opposite positions on each part of the pair.

The most widely distributed foreign exchange-linked structured product in the private bank industry is the Dual Currency Certificate. It is a simple tool with a very short maturity period, which allows investors to earn an attractive yield compared to the risk-free rate on the investment period. The condition is that the investor must take on a possible conversion risk that has been pre-determined.

So, why should investors consider investing in forex structured products? Forex correlation to other main asset classes is typically low, and its volatility level is generally in the middle of low bonds volatility and high equity volatility levels. For instance, the volatility on major currencies (G10 currencies) is around 10% to 12%. Forex structured products can offer attractive levels of yield on very short-term periods through moderate calculated capital risks, making them suitable for medium-risk return investors. Furthermore, investing in forex structured products can lower risks through decorrelation and diversification, making it a useful tool for portfolio management.

Forex structured products can be tailored to meet specific investor needs. For example, an investor who wants exposure to a particular currency pair can invest in a structured product that reflects that particular currency pair. Similarly, an investor who wants exposure to a specific sector or country can invest in a structured product that reflects that country or sector through its currency.

Forex structured products can also be used for hedging purposes. For example, an investor who has an investment in a foreign country and is concerned about currency risk can use a forex structured product to hedge that risk. Additionally, an investor who has an investment in a foreign currency can use a forex structured product to hedge the currency risk associated with that investment.

Forex structured products can offer investors an attractive alternative to traditional investment products. They offer a level of flexibility and customization that is not typically found in other investment products. Furthermore, the moderate calculated capital risks associated with forex structured products can provide investors with a higher level of returns than traditional investment products.

However, investors should be aware that forex structured products are not without risks. As with any investment product, there is always a risk of capital loss. Furthermore, forex structured products can be complex, and investors should fully understand the product before investing. It is also important to consider the credit risk associated with the issuer of the structured product.

In conclusion, forex structured products offer investors a unique opportunity for a forex strategy. They are flexible, customizable, and can be used for a variety of financial goals, including yield search, exposure, and hedging purposes. Furthermore, investing in forex structured products can lower risks through decorrelation and diversification, making them a useful tool for portfolio management. However, investors should be aware of the risks associated with forex structured products and should fully understand the product before investing.