MINIs can be categorised as trading MINIs or instalment MINIs, each with distinctive characteristics. MINIs are listed on ASX and more recently, Chi-X.
Trading MINIs offer leveraged exposure to an underlying asset, including shares, indices, ETFs, currencies and commodities. The MINI enables the investor to track the value of an underlying asset, on a one for one basis, for a relatively modest upfront cost.
There are three types of trading MINIs:
> MINI longs – enable investors to benefit from an upward price movement in the underlying asset
> MINI shorts – enable investors to benefit from a downward price movement in the underlying asset or hedge an existing position against a fall in its value
> Guaranteed Stop Loss (GSL) MINIs – enable investors to ‘risk manage’ exposure and have the added benefit of a guaranteed stop loss level. GSLs are only available over ASX-listed stocks and domestic indices.
Instalment MINIs offer investors medium to long term exposure to the stockmarket, enhanced dividend yields and franking credits and gearing without the risk of a margin call. Unlike trading MINIs, instalments MINIs have an expiry date. At maturity, investors have three options:
i. pay the final instalment and receive the underlying securities
ii. roll into another series of instalment MINIs
iii. cash out any value remaining in the investment.
MINI longs and shorts
MINI longs and shorts are the most commonly used MINI warrant and combine the features and benefits of other warrant types with unique features of their own:
> Offer degrees of leveraged exposure to a range of underlying assets, typically ranging between 50 and 95 percent. One security may have several MINIs issued, each offering different degrees of leverage.
> Have an in-built stop loss feature, set above the exercise price for MINI longs and below the exercise price for MINI shorts – this ensures investors cannot lose more than their initial capital outlay.
> Unlike other types of warrants, MINIs longs and shorts are open ended contracts with no set expiry date; as a result, it will generally track the underlying asset on a one for one basis.
> Cannot be exercised to buy or sell the underlying asset – they are cash settled.
> Allow an investor to make an upfront payment and borrow the balance from the issuer, who then charges interest and borrowing fees. If a MINI is sold the day of purchase, no interest is charged.
>The amount paid to buy a MINI is generally the difference between the price of the relevant share and the current exercise price of the MINI.
> MINI issuers are generally market makers, which ensures there is always a buyer when an investor wishes to sell a MINI.