Mini future

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A mini future is a leverage certificate with no end of term, the price of which is determined exclusively by the price movements of the underlying asset .

In the case of the mini-future, the purchase price of a share or another underlying asset (e.g. a share index ) is divided between the issuer and the buyer of the mini-future . The characteristics of the mini-futures are determined by the financing level determined by the issuer , the stop-loss and the subscription ratio . Overall, a mini future has certain similarities with both a warrant and a futures contract , but differs from both instruments.

As long as the underlying is traded at a price above the stop loss, the value of the mini-future is determined by the difference between the current price and the financing level multiplied by the subscription ratio. In contrast to classic warrants, volatility has no influence. If the price of the underlying falls below the stop-loss price, the mini future expires; In this case, the holder of the mini-futures may lose the entire stake or receive a refund from the issuer of a fixed amount (which is of course below the purchase price).

The financing level and the stop-loss price are raised by the issuer at regular intervals, this is how the issuer's profit is determined: While the holder of the mini-future benefits disproportionately from the price development of the underlying asset, the issuer benefits from a fixed interest rate of the capital employed by him, which results from the regular increase in the financing level and the stop loss.

Mini-futures are available as both long and short . The latter gain similar to put options lose value if the underlying base value decreases and vice versa.

example

We consider a mini future M of type long with share A as the underlying.

• Share A is trading at price 20.
• Mini-Future M has a financing level of 10 and a stop loss of 12. The current value of the Mini-Future is therefore 10.
• If at a later point in time share A is traded at price 30, the mini-future has a value of 20. The share has increased in price by 50%, while the mini-future has risen by 100%.
• If, on the other hand, share A falls to or below the stop loss of 12, the issuer dissolves its replicating position and the mini-future is prematurely terminated. The holder of the mini-future receives the difference between the sales price and the financing level.

Applications

Mini-futures can be bought on the one hand to hedge a portfolio (e.g. a short mini-future to protect a portfolio against falling prices) or for speculative purposes, since, as can be seen in the above example, the profit opportunities (but also the risk of loss) are significantly higher than the underlying asset.

literature

• A safety net for the «financial tightrope». In: Neue Zürcher Zeitung . May 21, 2007, accessed on August 13, 2019 (Swiss Standard German). 

Individual evidence

1. ↑ Mini Futures at a glance. In: BNP Paribas. May 9, 2017. Retrieved August 13, 2019 .