Mini-contracts are operations that are becoming increasingly present in the routine of investors.With these contracts, it is possible to invest in key indices and currencies for the financial market, such as the US dollar. So, you can diversify your portfolio.
Before investing in mini-contracts, you need to know about them, their characteristics and the advantages offered.
Want to know more? Then continue reading this article. Let’s take your questions on the following topics:
- What are futures contracts?
- What are mini contracts?
- How do mini-contracts work in the stock market?
- What are the types of mini contracts?
- What are the differences between mini contracts and futures contracts?
- What are the advantages of investing in mini contracts?
- What are the risks offered by mini contracts?
- Are there costs to invest in mini-contracts?
- How to find out your investor profile?
What are futures contracts?
The negotiation of futures contracts allows the market to negotiate the future expectations of a certain asset, such as currencies, indices or commodities. In the case of the Ibovespa Futures Index , for example, there is no need to purchase the entire basket of shares that make up the index and be exposed to changes in the indicator.
One of the advantages of the futures market is that you do not have to pay anything at the time of acquiring the assets, just having the required margin of guarantee, which can be in applications such as stocks, government bonds, bank bonds (such as CDBs, LCIs and LCAs – counting that are issued by third parties, that is, cannot have been issued by the same institution you are investing in).
However, for future contracts there is a daily adjustment. The investor receives the gains or pays the losses every day, not only when he sells the contracts, as in the stock market, for example.
Futures contracts are useful for companies and producers as a way of protecting the prices of their receivables in foreign currencies or the prices of their goods, known as Hedge.
Whereas, for investors, the objective is to obtain profitability from the variation between the purchase and sale value of the papers.
What are mini contracts?
Mini contracts were developed in 2001, by B3, with the objective of serving the small investor.
They have a lower capital requirement than full contracts. So, to start investing, you can use less money.
The minimum amount to be traded less than a contract. If you are looking for less exposure, they are good options.
As for full contracts, mini also work with the guarantee margin. As their value is lower, the margin is proportional.
Here are some examples of mini contracts:
- Bovespa mini index
- Future Mini
- Mini S&P contract
- Euro mini contract
- Mini Oil Contract
How do mini-contracts work in the stock market?
Mini contracts are available on the stock exchange in Brazil at B3.
Their names are made up of the acronym of the type of asset, the final two digits of the maturity year and the corresponding month, which in turn follows the table below:
| Month | Code |
| January | F |
| February | G |
| March | H |
| April | J |
| May | K |
| June | M |
| July | N |
| August | Q |
| September | U |
| October | V |
| November | X |
| December | Z |
Table identifying the months of expiry of mini contracts – Source: BM & FBovespa
Understand better by means of an example: the WINF19 paper corresponds to the mini contract of the Ibovespa Futuro index with a maturity date in January 2019.
Trading takes place at the home broker, through a trading platform or at the trading desk.
After purchasing the mini-contracts, you can keep them until the expiration date or sell in advance.
One of the strategies used in the futures market is Day Trade. It is a very short-term operation, in which the papers are bought and sold on the same day.
Types of mini contracts
Before starting, every investor needs to know the types of mini-contracts offered on the stock exchange.
In this way, it is possible to define the most suitable application areas for the portfolio, according to the financial objectives.
See more about each of them:
Ibovespa Futures index mini-contracts
Mini-contracts for the Ibovespa Futures index are contracts that reflect the future expectation on the shares of the largest companies listed on the stock exchange, Ibovespa (IBOV). They are considered as financial market derivatives .
The future index also serves as a benchmark for the variable income market , that is, it can be interpreted as a benchmark for other assets.
Thus, according to Ibovespa’s performance , it is possible to know whether its shares are performing well. In general, the goal is to have a return above it.
Mini index contracts negotiate future IBOV scores using the acronym WIN.
Each point on the Ibovespa Futuro is equivalent to R $ 0.20 (since each point on the Full Index is equivalent to R $ 1.00. The mini contract is equivalent to 20% of the value of the full contract. Then the positions are calculated as follows: multiply result points by 0.20.
They influence, along with full contracts, the daily progress of stock exchange quotes.
The operations mature on the Wednesday closest to the 15th of the even months of the year.
Mini dollar contracts
One way to invest in dollars is through mini-dollar futures contracts. They are identified by the acronym WDO.
These contracts negotiate in reais (R $) equivalent to US $ 1,000 .
The minimum variation in the score they can submit is $ 0.50.
Future dollar prices depend on internal and external factors such as the fall in the Selic rate, the increase in interest rates in the U.S. and the 2018 elections.
The purpose of this investment for exporting companies is to ensure the prices of the US currency on the established date.
Thus, they can obtain more profits in sales and also to use the dollar quotation for investment in new projects or for the purchase of new machines.
For the investor, the purpose of mini-dollar contracts is to have returns from fluctuations in exchange rates and also to serve as a hedge for the portfolio.
Hedge is widely used in times of instability in the Brazilian market. In 2015, the dollar was one of the investments with the highest growth and yield.
For scenarios such as the 2018 elections, the search for means of protecting capital tends to increase, since elections are always a scenario of uncertainty.
For this, the mini dollar contract can be used to protect itself from major currency fluctuations.
Main differences between mini contracts and futures contracts
To invest in the futures market, it is necessary to understand the differences between full contracts and mini-contracts.
Basically, their investment purpose is the same. However, there are distinct characteristics.
Full contracts have as a minimum quantity to be negotiated five contracts of the chosen product. With them, it is possible to invest in commodities, indices and currencies.
These assets are aimed at companies, producers and experienced investors, given their higher cost.
Mini contracts are more accessible alternatives. The contract has less exposure and therefore a lower margin call.
If your interest is to invest in future dollars or future indexes with less capital use, they can be good investments.
Advantages of investing in mini contracts
Now that you know more about mini-contracts, the time has come to know what the advantages that this investment can offer.
In this way, it is possible to know more safely if they are suitable for your financial goals.
Check out each one below:
High liquidity
Mini-contracts are composed of highly liquid assets, such as the Ibovespa index and the dollar. So it is much faster to enter and exit operations with these assets.
In Day Trade operations, this factor is important, as it is necessary to make quick decisions in a shorter period of time. If the investor has difficulties in trading the assets, there is a possibility of losses.
Diversification
By investing in mini-contracts, you diversify your portfolio and go beyond investing in stock market shares.
Through diversification, it is possible to make gains on several fronts and maintain good returns, regardless of the economic scenario.
If your goal is to live off an income, they can be a good option, because there is the possibility of obtaining attractive profits.
Leverage
One of the advantages of mini contracts is that you can use leverage in your operations. With it, you can invest in more capital than you have in mind.
The goal is to apply the leveraged value to earn more. Thus, it is possible to start with lower values than the other assets on the stock exchange.
Remember that leverage should be used with caution, because if the transaction results in losses, you will have to bear them and just as profits are maximized, the opposite is also true.
Flexibility
The mini-contracts bring flexibility to the investor, since trading is done directly from the home broker, trading platform or at the trading desk. Thus, you can purchase the investment directly from your home or wherever you are.
With flexibility, you can decide for yourself the best time to sell your mini contracts and the desired price for them.
Risks of mini-contracts
Like any investment, mini-contracts pose risks to investors. Knowing about each one of them is essential to define your earning strategies and make the correct capital allocation.
Find out more about them:
Oscillation Risk
Like all variable income assets, mini-contracts are subject to fluctuations due to expectations, news or any other factor that may influence their price.
Risk of margin change
When investing in mini-contracts, one of the associated risks is the change in the guarantee margin.
B3 has the autonomy to change the required values at any time without notice.
So if it increases and you don’t have enough money, you may be forced to decrease your positions or get out of the papers.
As a rule, changes in the margin required for contracts are adjusted daily, both up and down, but are minor adjustments. However, in cases where B3 identifies that the asset represents a considerably greater risk today than it did yesterday, it can and will change the required margin amount.
Risk of daily adjustments
As mini-contracts are traded on the stock exchange, they are priced daily.
Depending on the capital invested, there are days when your securities may experience negative variations.
So when investing in mini-contracts, you must leave an amount available to cover the adjustments and avoid paying interest or forcing out of positions.
Costs for investing in mini contracts
When investing in mini-contracts, it is important to consider the costs of operations, as they can compromise part of the profitability obtained.
All papers are subject to Income Tax (IR). It is levied on the income of the period, with a rate of 15%.
In Day Trade operations, taxation is 20% over the returns obtained in the month.
Discover your investor profile
Mini contracts can be good investments for your portfolio, however, they have risks. Did you know that you can find out if they are the right options for you?
For that, you need to know your investor profile. It determines which are the most suitable assets for your portfolio.
Here at BTG, you can use our Investment Simulator and discover your risk tolerance right now.
Just fill in with your personal data, inform what your main objective is when investing and answer some questions related to your knowledge about the world of investments.
Within minutes, you receive the answer directly in your email. Enjoy and do it right now!
Invest with BTG Pactual digital
BTG Pactual already has more than thirty years of tradition. Here, we value excellence in customer service and investment management.
See how simple it is to open your account:
- Access the BTG Pactual digital website and fill in your personal data. Also send photos of your ID, proof of residence and a selfie.
- Did you receive our return by email confirming the account opening? Then the next step is to transfer the money you want to invest to your BTG Pactual account.
- When building your investment portfolio, consult one of our specialized advisors. They will assist in your decision making by showing the most suitable ones for your profile.
- Track your positions and the performance of your investments at any time using the BTG Pactual application.
- You will have access to complete reports with the results of all your applications.
Conclusion
Mini-contracts were developed with the objective of serving the small investor and also those who want to invest in smaller lots. The size of mini contracts is equivalent to 20% of full contracts.
Keep learning to invest better through these other articles on our blog:
- The top 17 mistakes of the novice investor
- Stock Analysis: Technical vs. Fundamentalist
- 10 Investment Books Every Investor Should Read
To invest in the futures market, it is not necessary to “pay” for the asset, because for the operations to be carried out a margin is required and you receive or pay a daily adjustment amount.
So if you have investments in fixed and variable income that are accepted as collateral, you can use them to carry out transactions with mini contracts.
In addition, trading takes place directly at your home broker. Then you can operate without leaving your home.
Before investing, the first step is to know your investor profile. It shows which applications are most suitable for your portfolio.
