What are Mini-Futures?

Futures are financial instruments, which transfer to the owner the right as well as the obligation, to buy (in case of buying a future) or to sell (in case of selling a future) an underlying asset at a a priori fixed price at the end of the future's duration. The standardised Futures Trading is based on so-called Futures Contracts. Here only well-defined volumes, prices and durations are allowed.

Mini-Futures - a particular variant of margin-certificates - are in many aspects similar to futures. Nevertheless they have a number of advantages in comparison to those:

Different to Futures, they have an unlimited duration, which eliminates all risks related to contract changes.
Mini-Futures require significant lower account sizes.
Mini-Futures avoid margins, therefore the main component of the risk related to Futures Trading.
An integrated Stop-Loss protects the investor against a complete loss of the capital invested.

An important aspect in case of creating Mini-Future Portfolios is given by the fact that, due to the much smaller capital required, it is much easier to maintain a highly diversified portfolio, even at a very small account size of 5000 Euro. Modern Portfolio Theory shows, that in case of a reasonably high diversification the risk related to the overall portfolio can be reduced by 70% (!!!). To achieve a similar effect when trading conventional futures, the investor would need an account size in the order of more than a million Euro.

Mini-Futures - although only introduced in 2002 - get more and more popular. Due to their advantages they have the potential to be replace conventional derivates like options or futures in the medium term.

What is a Mini-Future Portfolio?