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Leonteq Know-How 12What are Mini Futures? A guide for private investorsMini Futures are a flexible and transparent type of leveraged product that allow investors to participate in the price performance of an underlying asset with a comparatively low capital investment. But how exactly do Mini Futures work, what variants are available and what opportunities and risks should investors be aware of? This article provides you with a compact introduction to these popular financial instruments.1. What are Mini Futures?Mini Futures are derivatives that allow investors to bet on rising or falling prices of an underlying asset (e.g. shares, indices, commodities or currencies). They are characterized by built-in leverage, which increases the potential gains, but also the losses. Unlike traditional Warrants, Mini Futures do not have a fixed term and only expire when the so-called stop-loss level is reached.2. Long vs. Short Mini FuturesThere are two basic variants of Mini Futures:

Long Mini Futures: This variant benefits from rising prices of the underlying asset. It is suitable for investors who have positive market expectations.

Short Mini Future: This variant offers opportunities if the price of the underlying asset falls. It is ideal for investors who want to bet on falling markets.

3. How does a Mini Future work?A Mini Future consists of three main components:

Strike price: Also known as the strike or financing level. The issuer assumes part of the investment, which means that the investor only has to finance a fraction of the underlying asset.

Leverage: The leverage results from the ratio between the current price of the underlying asset and the strike price, i.e. the investor's equity share.

Stop-loss level: Is upstream (Long Mini Future) or downstream (Short Mini Future) of the strike price. If this level is reached, the product is automatically terminated early. However, there may be a residual value repayment if the hedging transaction can be terminated above the strike price (Long Mini Future) or below the strike price (Short Mini Future).

Example: An investor buys a Long Mini Future with an exercise ratio of 1 on a share quoted at CHF 100. The strike price is CHF 80, the purchase price is CHF 20, resulting in a leverage of 5 (CHF 100 / CHF 20). The stop-loss level is CHF 85. Possible scenarios:

1. The share rises to CHF 110 (+10%):

The Mini Future rises from CHF 20 to CHF 30 (+50%)
The profit is disproportionately high due to the leverage.

2. The share falls to CHF 85 (stop-loss level reached):

The product expires automatically.
The investor may receive a residual value repayment if it is possible to liquidate the issuer's hedging transaction above the financing level. The maximum repayment in this case is limited to the absolute difference between the strike price and the stop-loss level.
If the liquidation occurs at or below the financing level, the investor loses the entire capital invested.

Source: Leonteq Securities4. Factors influencing the price of a Mini FutureSeveral factors determine the value of a Mini Future:

Price of the underlying asset: the performance of the underlying asset has a direct impact on the price of the Mini Future.

Strike price: The closer the strike price is to the current price of the underlying asset, the more of the investment is financed by the issuer, thus ensuring higher leverage.

Leverage: The higher the leverage, the greater the potential gains - but also the greater the risk of loss.

Financing costs: As the issuer bears part of the investment, ongoing financing costs are incurred, which are borne by the investor through continuous adjustment of the strike price.

Stop-loss level: If this level is reached, there is an early liquidation. The repayment depends on the actual liquidation price of the issuer's hedging transaction.

4. Opportunities and risks of Mini FuturesOpportunities:

High leverage: Investors can participate disproportionately in market movements with a low capital investment.

Flexible investment strategies: They are suitable for different market opinions (rising or falling prices).

No fixed term: Unlike Warrants, Mini Futures have no fixed term.

Limited risk of loss: The maximum loss is limited to the amount invested. In addition, the stop-loss mechanism protects against a total loss.

Risks:

Stop-loss risk: If the stop-loss level is reached, the product is automatically liquidated. Repayment depends on market conditions. A total loss is possible.

Loss disproportionate to the stake: Price losses can be amplified by the leverage.

Financing costs: Holding Mini Futures long-term can reduce returns due to the financing costs incurred.

6. Conclusion: Are Mini Futures the right product for you?Mini Futures are attractive leverage products for experienced investors who want to make targeted bets on market movements. They offer great opportunities for gains, but also entail considerable risks. The stop-loss level in particular plays a key role, as it can lead to premature termination of the product. Investors should therefore familiarize themselves thoroughly with the mechanisms and possible risks before investing.Are you ready to integrate Mini Futures into your investment strategy? Our team of experts will be happy to provide you with more information!

We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.