Structured Products & ETNs
Definition
A structured product is a customized investment vehicle created by financial firms for specific types of clients.
It typically combines two pieces into a single investment:
🔑 The two components
| Component | Typically is | Purpose in the example below |
|---|---|---|
| A debt component | often a bond | Provides the principal protection the investor is looking for |
| A derivative component | often an option | Provides the market-linked upside |
- These investments can be complex and highly tailored.
Worked example
Say an investor wants to put in $200,000 and earn the return of the Nasdaq-100 over 4 years while protecting against a bear market. A financial firm could build a structured product from two pieces:
- $164,000 zero coupon bond ($200,000 par value)
- $36,000 Nasdaq-100 index call
| Piece | Amount | Detail |
|---|---|---|
| Zero coupon bond | $164,000 | $200,000 par value; matures at $200,000 at the end of four years |
| Nasdaq-100 index call | $36,000 | Bullish on the index |
| Total invested | $200,000 | Over a 4-year period |
The zero coupon bond supplies the principal protection. If the bond’s issuer (usually the firm that built the product) does not default*, the bond matures at $200,000 in year four. Even if the call expires worthless, the investor still gets $200,000 back.
*Because default is possible, structured product investors must be comfortable with credit risk.
The call is bullish on the index. If the Nasdaq-100 rises, the option gains value and the investor receives that gain on top of the $200,000 from the bond. If the index falls, the call may expire worthless and add nothing.
Outcome table
| Nasdaq-100 outcome | Option result | Investor receives |
|---|---|---|
| Index rises | Option gains value | Those gains in addition to the $200,000 principal from the zero coupon bond |
| Index declines | Option may expire worthless | $200,000 at maturity, no additional return |
General characteristics and risks
- This is just one way to build a structured product. In general, any combination of two or more financial instruments packaged into a new customized investment can be considered a structured product.
⚠️ Liquidity risk
Because these products are customized, there’s typically no public secondary market for them. As a result, most structured products involve significant liquidity risk.
⚠️ Credit risk
Because default is possible, structured product investors must be comfortable with credit risk.
⚠️ The one exception: Exchange traded notes (ETNs)
There’s one primary exception to keep in mind. Exchange traded notes (ETNs) are technically structured products, but they trade on stock exchanges. When a financial instrument trades on an exchange, liquidity risk is generally very low. ETNs are one of the only structured products that can typically be assumed to have little-to-no marketability problems.
| Structured product | Trades on an exchange? | Liquidity risk |
|---|---|---|
| Most structured products | No public secondary market | Significant liquidity risk |
| Exchange traded notes (ETNs) | Yes — trade on stock exchanges | Generally very low; little-to-no marketability problems |
Key points
Structured products
- Customized financial products
- Typically involve a derivative and debt component
- Subject to credit and liquidity risk
- ETNs only type of structured product not subject to liquidity risk
Sources
Primary/official references for the material on this page. Every link was fetched and returned HTTP 200 on 2026-08-15.
| # | Source | Publisher |
|---|---|---|
| 1 | Structured notes — payoff linkage, issuer credit risk | SEC / Investor.gov |
| 2 | Structured notes with principal protection | SEC / Investor.gov |
| 3 | Rule 2111 — suitability, reasonable-basis/customer-specific/quantitative | FINRA |
| 4 | Achievable Series 65 — chapter 1.5.3 | Achievable (course text) |