Risks
A payoff diagram shows what happens at maturity if everything goes according to the term sheet. These are the ways it can go differently.
Issuer risk
A structured product is a debt obligation of its issuer. If the issuer becomes insolvent, the redemption depends on what its creditors recover, whatever the payoff diagram promised. This applies to capital protection products as much as to any other. Some products are collateralised; the term sheet says whether yours is.
Market risk of the underlying
Below the protection level, the barrier, the strike or the financing level, the product follows the underlying. For yield enhancement, participation and leverage products this means losses can be as large as those of a direct investment, or larger.
Barrier risk
A barrier is usually observed continuously, so an intraday touch counts. One touch changes the payoff for the rest of the term, even if the underlying recovers afterwards. The charts on this site show the payoff for a chosen scenario; they cannot tell you how likely a touch is.
Credit risk of a reference entity
Products with additional credit risk expose you to a second borrower. A credit event typically replaces the entire payoff with the recovery value of the reference bond, which can be a small fraction of the nominal.
Liquidity and price before maturity
Payoff diagrams describe maturity. Before then the price reflects interest rates, volatility, dividends, time to maturity and the issuer’s own credit spread. A product can trade well below its protection level years before it matures. Secondary-market liquidity is usually provided by the issuer alone, at a spread.
Path dependence and early redemption
Autocallable products can be redeemed early, which returns the nominal when conditions are favourable for the issuer and leaves you to reinvest. Constant leverage certificates compound daily returns, so a volatile sideways market erodes their value even if the underlying ends where it started.
Currency, costs and taxes
Products in a currency other than yours add exchange-rate risk. Issuance costs, distribution fees and the bid–ask spread reduce returns and are not visible in the payoff diagram. Tax treatment differs by product and jurisdiction.