Mini Futures for portfolio hedging in the event of market turbulence
The tariffs of 39 percent announced by US President Trump could weigh heavily on Europe and Switzerland in particular, which in turn could trigger considerable turbulence on the local stock markets. Targeted portfolio hedging, for example with short Mini Futures, offers investors the opportunity to react flexibly to falling prices without having to abandon their long-term investment strategy. In this article, you will learn how these instruments work and how you can hedge your portfolio in uncertain times.
In times of economic uncertainty and volatile markets, investors are increasingly looking for ways to protect their portfolio against unexpected price losses. In addition to traditional hedging strategies such as Put-Options or broad diversification, Mini Futures offer a flexible and cost-effective way of hedging a portfolio against falling prices. But how exactly do Mini Futures work and how can they be used in a targeted manner?
Short Mini Futures - portfolio hedging in volatile markets
Short Mini Futures are effective instruments for hedging a portfolio against falling prices. They make it possible to offset the loss in value of the portfolio or individual positions through the increase in value of the short Mini Futures. A major advantage of this strategy is that investors do not have to sell their existing positions and can therefore remain invested for the long term.
Important considerations for investors
Before investors use Mini Futures for hedging, they should clarify a few basic questions:
Analyze the portfolio:
First, investors should determine which positions in the portfolio should be hedged. This can be individual shares, a specific sector or the entire portfolio.
Selection of the underlying:
To hedge an entire portfolio that is heavily focused on Swiss equities, for example, an index such as the SMI® that reflects the composition of the portfolio as closely as possible is a good choice. The corresponding underlying can be selected directly for individual positions.
Calculation of the required Mini Futures:
To calculate the number of Mini Futures required, the value of the portfolio to be hedged is divided by the leverage of the Mini Futures.
Formula:
Portfolio value / leverage = value of the required Mini Futures
Example:
A portfolio worth CHF 100,000 is to be hedged with a short Mini Future that has a leverage of 10. The required capital investment is
100,000 / 10 = 10,000 CHF
In order to protect the entire portfolio against any price setbacks, a capital investment of CHF 10,000 would be required - for a Mini Future with a leverage of 10.
Monitoring the stop-loss threshold:
Investors must keep an eye on the stop-loss threshold of the Mini Future. If this threshold is reached, the Mini Future expires and the hedge ends. In this case, a new Mini Future must be purchased to continue the hedge.
It should be noted at this point that if the markets rise contrary to expectations, investors in a short Mini Future will suffer losses.
Conclusion - Mini Futures to hedge against price losses
Mini Futures are a versatile and effective instrument for hedging a portfolio against falling prices. They offer investors the opportunity to react flexibly to market developments without having to give up their long-term positions. Their simple structure, leverage mechanism and independence from volatility make them particularly suitable for investors looking for a cost-efficient and transparent hedging strategy. However, the risks, especially the knock-out risk, should not be underestimated. Careful planning and monitoring are therefore essential if Mini Futures are to be used successfully for portfolio hedging.