What's a Mini-Future Certificate?
Mini-Future Certificates bring together the advantages of open end tracker certificates and warrants to create an attractive and innovative investment opportunity. Put simply, BNP Paribas finances part of the cost of the underlying, which reduces the investor’s capital outlay. However, since the performance of the underlying is fully reflected in the investment, a leverage effect is created.
What is the difference between a Mini-Long and a Mini-Short?
Mini-Future Certificates are available in both long and short versions. Investors who expect the price of their chosen underlying to rise would buy a Mini-Long Certificate, those who anticipate a downward price trend would buy a Mini-Short Certificate.
What are the risks to consider when trading leveraged products?
Leverage products are generally aimed at experienced investors with advanced knowledge. We therefore recommend that investors read the product documentation carefully, particularly with regard to the following risk factors:
Market risk: The prices of leverage products may fluctuate sharply up or down due to price movements of the underlying, which in the worst case may lead to a total loss of the invested capital.
Leverage effect: As the leverage effect works both upwards and downwards, it can have a negative or positive effect on the value of a leverage product.
Risk of termination/reinvestment risk: The issuer has the right to terminate a leverage product without maturity (so-called "open-end" products) by giving prior notice to holders. In such a case, the redemption amount may, under certain circumstances, be considerably lower than the initial issue price and, in the worst case, the redemption value may even be zero, which corresponds to a total loss of the capital invested. Furthermore, investors bear the risk that the redemption occurs at an inopportune time and that the redemption amount can only be reinvested at less favorable conditions.
Exchange rate risk: Leverage products are subject to exchange rate risk if the underlying is traded in a different currency than the leverage product itself. Exchange rate fluctuations can influence the value of an investment in leverage products both positively and negatively.
Credit risk/default risk: The investor bears the risk of default and bankruptcy of the issuer and the risk of default and bankruptcy of the guarantor. In the event of a likely or certain bankruptcy of the issuer and/or the guarantor, the investor may lose part or the entirety of the capital, or may receive other financial instruments in replacement, or may suffer from a change in the terms and conditions.of thr products.
Where can I buy the products?
Our products can be traded either on the Swiss Exchange or over the counter.
Exchange trading: When buying and selling products via SIX Swiss Exchange, investors place a corresponding order via their bank or the online broker with which they maintain a securities account. BNP Paribas acts as market maker and provides continuously tradable bid and ask prices (buying and selling prices). In the case of a market order (order to execute a transaction at the current best possible price), order execution is always guaranteed under normal market conditions, even if there has been no turnover in the relevant product on the stock exchange for some time.
Off-exchange trading: For clients of Swissquote and PostFinance, BNP Paribas offers a comprehensive range of leveraged products for off-exchange trading via Swiss DOTS. With off-exchange trading, the exchange is bypassed. Investors thus trade directly with the issuer or the market maker. The fees for off-exchange trading are therefore usually lower than those for trading via the exchange.
Information on the trading venue and trading hours for each product are available on the respective product detail pages on our website.
How is the Financing Level adjusted for Mini-Futures?
As with all leveraged products, investors have to pay financing costs. They do so in the case of a Mini-Future Certificate via a daily adjustment of the Financing Level. This means that the Financing Level does not remain constant throughout the life of the Mini-Future Certificate but is instead adjusted on a daily basis. It is therefore recommended that investors accurately manage their positions in order to balance actual costs and gains expected from their strategy.
Changes in the Financing Level are determined by the following factors:
- The Market Rate in the currency of the underlying
- An Interest Rate Margin (Financing Spread) set by BNP Paribas
- Any dividends paid out on the underlying (Dividend Adjustment Amount)
- Rollover of the underlying futures contract (for Mini-Future Certificates on commodity futures)
The following calculation is used to adjust the Financing Level:
Financing Leveltomorrow = Financing Leveltoday x (1 + Financing Ratetoday)1/360 - Dividend Adjustment Amount
Whereas the Financing Rate of a Mini-Long differs from the Financing Rate of a Mini-Short:
Mini-Long: Financing Rate = Market Rate + Financing Spread
Mini-Short: Financing Rat= Market Rate – Financing Spread
Any dividends (after tax) paid out are deducted from the Financing Level by BNP Paribas on the underlying equity‘s ex-dividend date for both Mini-Longs and Mini-Shorts.
Please note: BNP Paribas can also charge the financing costs during the trading day, which means that day traders (who buy and sell their position within one trading day) may incur financing costs too
How can you hedge your portfolio against falling prices?
There are numerous ways to protect a stock portfolio from price losses during a bear market. In our article on "Portfolio hedging", we present two alternatives.
What is meant by "intrinsic value" and "time value"?
In the case of Mini-Future Certificates and Knock-Out Warrants, the purchase price is always very much based on the difference between the financing level/strike and the current price of the underlying. This is not so simple with warrants. Here, the purchase price is determined from the addition of two value components that can be analyzed separately: the "intrinsic valueʺ and the "time valueʺ.
The intrinsic value corresponds to the difference between the strike/exercise price and the current price of the underlying.
Warrants always have a term. For investors, there is therefore always the chance that the price of the underlying will be above (Call Warrant) or below (Put Warrant) the strike by the end of the term. This chance can be assigned a probability of occurrence and a value using financial mathematical methods. It should come as no surprise that this opportunity is not offered free of charge on the capital market, but that a price must be paid for it. In options language, this opportunity, to which a probability of occurrence can be assigned, is called time value. For this reason, a Call Warrant whose strike price is above, or a Put Warrant whose strike price is below, the current price of the underlying asset is not worthless during its term, even if exercising it would make no economic sense.