Strip away all the features of accumulators and you will find that you accomplish the same trading plan by selling uncovered or covered puts and earning a premium. Buying an accumulator is the same as selling an uncovered put, but worse, because at least with an uncovered put you can close out your position with one trade. The accumulator's 'knockout' clause limits upside returns. 'Double down' clauses require the investor to buy disproportionately more stock at regular intervals in a devastating, open-ended commitment through the entire term of the instrument.

Selling a put is a contract that commits you to buying a security or asset from the buyer of the put at a set strike price. However, when you sell an uncovered put your losses are determined by the amount of shares and the difference between the strike price and prevailing price of the stock you have committed to buy. While losses can be unlimited when stock prices are rapidly falling, they are limited once you close the position. Selling a covered put adds a level of safety through a hedging.

Unlike accumulators, you can buy and sell puts in the market. Furthermore, the commissions on selling puts are easier to see and probably cheaper than the 1 per cent to 5 per cent fees and the padded premiums charged on structuring accumulators. Puts are also easier to understand and potential losses can be readily limited.

Robert Jones of FCL Advisory says that, 'accumulators are unnecessarily complex and expose buyers to unlimited losses while completely capping their upside returns'.

Independent financial advisers say a typical group of accumulator buyers has a net worth of between US$1 million to US$20 million. Investors with US$20 million to US$50 million are usually advised by independent advisers who are likely to deter them from buying such structured products.

Nonetheless, the market echoed with stories of huge losses - like one investor who lost US$1 billion from an accumulator deal originating from a bank in Singapore. Prominent bankers and research analysts, who should have known better, were sucked into the speculative morass. Many kept quiet, fearing shame and ignominy among their peers.

But these arguments don't mean that accumulators cannot serve a constructive purpose for portfolios. Todd James of BSI said: 'Selling puts in moderation is fine if you are willing to hold that position long-term. Accumulators can also be an advantageous way to take advantage of low stock prices and high volatility over a specified period.'

Accumulators allow investors to make a superior return and exploit volatility on a stock they already hold in their portfolio if the stock price has fallen to low levels. James favours using them at lower price levels, but he warns investors to understand and manage the downside and not be blinded by potential short-term returns. 'Don't bet most of your net worth or entire portfolio on the tactical move of an accumulator contract. Buy in at a low stock price in a relatively small amount of stock that is already represented in your portfolio. That way, if you are forced to buy more stock under the terms of your accumulator, it will only average up or down the cost and become a minor addition to your overall holdings.'

Prudent and disciplined use of accumulators means entering into a deal for only as much stock as you can afford to add to your portfolio. Although sellers of accumulators must disclose how much stock has to be bought on the downside, investors should understand how their trade will affect their holdings. By focusing on a stock that you already hold as a long-term investment, it should be attractive enough to hold longer if the price falls. Disciplined investing with accumulators compels investors not to punt at higher price levels. Knowing where your share price floor or limit lies relative to your holding is a key factor.

So where can accumulators go so wrong? When investors ignore high price levels where the upside becomes minimal, the onerous terms-capped returns and knockout clauses can turn a dream into a nightmare. 'Accumulators went bad in 2009 because of a mixture of bad decisions by investors,' James said. 'They couldn't see how the market could decline so few were prepared for a big downside. Hordes of investors shopped from bank to bank seeking accumulators with better terms like more leverage and lower knockout levels. They didn't understand banks would give into their demands and compensate by changing other terms if the price fell.'

The rush of investors towards this cliff of unrealistic expectations worsened when local accumulators became overweighted on one or a single group of stocks such as China Mobile or HSBC. 'They became overused. A concentration of risk developed. And the pressure on these large stocks actually helped to pull down their prices,' James said.

Investors who are seeking to grow and protect wealth can either sell puts or buy accumulators to make returns over a short or medium term. But even aggressive traders should think about the same issues that conservative investors must always consider - protection of capital and limiting the downside.