A reverse convertible guarantees a fixed interest rate (coupon) on the nominal value of the bond at a level that in most cases is far in excess of going capital market rates. At maturity, the issuer has the option of either paying back the nominal value or delivering to your account a predetermined number of the underlying shares. If the share price on the valuation date lies below the strike price, repayment is normally made in shares. Sharper declines in the share price can more than outweigh the interest payments, so it is possible that a loss could also be incurred.

The risk of total loss is essentially self-explanatory - it underscores the fact that the capital invested in a financial market position could be completely lost. This risk is theoretically inherent in any purchase of a stock (e.g. if the company were to become insolvent) but also in terms of most structured products. An exception to this - provided the issuer, itself, doesn't go bankrupt - are capital-protected products that guarantee a minimum repayment, as well as reverse convertibles and index-linked bonds that guarantee at least a fixed level of interest income. The risk of total loss is especially high with many options, normal warrants and knock-out warrants because of their leverage.