Single Stock Futures
In the futures stores, when one makes reference to the futures contracts, the obvious shares that come to mind are commodities such as energies, financials, and agricultural commodities and so on. However, being what they are, “derivatives” it is not surprising to know that there are also futures contracts for the global assets as well.
If commodity futures trading aren’t pleasing enough, then you now are able to trade share futures that give you a workable alternative while at precisely the equal time with experience of the equity stores with all the extra improvement of owning some identifying characteristics which are ideally fitted to hedging risk or even for speculative purposes.
Referred for Single Stock Futures or SSFs for short, traders may trade the inherent shares out of the equity stores. Single share futures are all offered for stocks and crosses throughout the US, UK, Europe and also Asian equity stores.
In the following column, we explain what stock futures are, also for example the important points like the margin requirements and how traders may utilize share futures for various purposes. If you would like to trade the share exchange, then it’s critical to know the finer information on this quite exotic trading vehicle which then may allow you to discover whether trading share futures may be the ideal alternative for you personally.
What are share futures?
As its name implies, share futures are futures or derivatives that track the underlying stock, which in this instance has been recorded assets. Stock stocks have been around for a while Particularly in the UK and South Africa. At the U.S. share futures were initially barred but had been introduced and began earnestly traded after all the year 2000 following the U.S. Congress passed the Commodities Futures Modernization Act of 2000 (CFMA). For that reason, share futures are sort of relatively brand new shares from the economic stores and also are around for just 16 decades. You will find three trades which kick started the share futures in the U.S. nevertheless today, just 1 remains.
Single share futures have been thought being a economic derivate that offers delta vulnerability into the moves of their underlying stock, that’s the share under consideration. Delta vulnerability or buck delta is utilized to assess the cost sensitivity of a portfolio into the fluctuations in the underlying securities.
Single share futures the assets out of the equity stores and also act much like a standard futures contract. Stock stocks are basically an compliance medially 2 parties, both a seller and buyer of this share exchange. The purchaser promises to pay for the given cost in a predetermined period whereas owner is bound to send the share at the equal specified date. You overlook ‘t need to purchase stocks beforehand if you want to sell a share futures contract as most of these are cash-settled, meaning that there is no physical delivery of the assets.
While this might seem similar in the nature of trading traditional assets, share futures differ in the fact that they are standardized, meaning that they have a fixed quantity or the number of stocks each contract can control. More importantly, share futures is traded with low margin requirements.
The above conditions make for single share futures as an additional trading stock worth considering if you are interested in the equity stores or looking for ways to minimize your portfolio exposure.
Stock futures or single share futures are traded on an exchange which is the clearing house. The operational functionalities and the rules governing single share futures trading remains equal. Some of the well-known exchanges that offer single share futures are:
- OneChicago electronic exchange. Currently there are over 1800 US listed securities on the OnChicago’s delta1 trading platform.
- Eurex Exchange: You can also trade the SSF’s on the Eurex Exchange which has a listing of 1022 SSF’s covering assets from over 20 countries
- ICE Exchange: Lists SSF’s from mainly regional Europe such as Italy, Spain and the UK
- JSE: The Johannesburg Stock Exchange offers SSF products, primarily focusing on the South African equity stores
- London International Futures and Options Exchange (Liffe): Liffe is another well-known exchange for trading the share futures contracts, based in London. The contracts are available for both US and UK listed assets.
SSF Volumes in Eurex Exchange – Source Eurexexchange
Using only share futures contract, traders may trade several of these well-known inherent assets recorded from the S&P500 such as Apple Inc., IBM, Wal- Mart to list a couple.
Just like conventional futures contract, the only share futures arrive with contract weeks, ideally to a quarterly basis.
Stock stocks are offered in 2 formats:
- No Dividend Risk (NDR) or Dividend Neutral Stock Futures (DNSF)
- Traditional SSF
Although these two kinds of share futures the equal underlying stock, that’s the share in this circumstance, that the No Dividend Risk type of single share futures removes the chance of dividend predicting. The DNSF or even NDR kind of share futures-contract brings with the only share future and also the dividend futures-contract.
As with the majority of futures, just one share futures are cash-settled, meaning there isn’t any physical shipping or exchange of stocks involved if you don’t explicitly would rather put up your contract you adulthood. Most brokers frequently notify you until the expiry day and oftentimes, the places are automatically locked when they’re still available.
The vocabulary as well as the emblem contracts are not quite the equal for single share futures contracts much like someone of those additional futures.
For example T1C/F7 indicates just one share futures for AT&T Corp using F7 symbolizing the contract which is January 20 17.
Example Price Table for a Single Stock Future
Below is a summary of the single share futures contracts:
- Contract Size: 100 stocks of the underlying
- Expiration: Quarterly (March, June, September, December) but there are additional serial months
- Tick size: 1 cent x 100 stocks or $1
- Trading hours: 8:15a.m.- 3 p.m.
- Margin: 20% of the share ‘s value
Example of a single share futures trade
An SSF is a contract medially the buyer and the seller for the underlying share. Each contract is for 100 stocks in a specific exchange listed share. The contract pertains to the underlying share cost at which it is traded and the date on which the future trade is to come to pass, also known as the expiry date of the contract.
As with any futures contract, the buyer and the seller are mandated to post an initial margin. This is set to 20% of the share ‘s value but on average it is around 15% – 30%. Despite being fixed at 20%, the margin is calculated on a daily basis which needs to be monitored as the contracts are marked to store.
For example, if you were to trade the single share futures for Apple Inc. and if the share cost was trading at $100, then the notional value of Apple’s single share contract is $100 x 100 = $10,000. A futures trader would be required to post an initial margin of $2000 which is 20% of the value of the contract.
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If the buyer of the single share futures contract decides to sell the contract after holding it for a few days and the cost of Apple rose to $120, then the buyer would obtain back $2000. Note that the buyer of the single share futures did not take any ownership of the stocks and merely profited on the speculative trade made possible by futures trading.
The chart underneath shows an overlay of the Apple share cost and the daily margin requirements fixed at 20%, but changes according to the cost fluctuations.
Stock Price and Margin Requirement Changes
On a mark to market foundation, the preliminary perimeter continues to alter and the addition or subtraction from the perimeter to its share futures contracts varies so.
Why would anybody trade share futures?
Single share futures are widely popular throughout the world with assorted exchanges from Moscow into Thailand along with Dubai offering single share futures .
You are able to trade single share futures should you only desire to earn benefit against the cost volatility of the underlying store. However there are far more profits than this.
Some of these comprise:
- Trading leverage: With just 20% allocation demands, it’s a good deal more economical to trade assets via one share futures compared to have the assets directly
- Speculative purposes: The only share futures would be the perfect tools to trade particularly in the event that you would like to take a position on the amounts without even looking after delivery of the underlying stock
- Hedging: Investors that have stocks in an organization ‘s share may also trade the one share futures additional to secure their investments that are original. As it should difficult to market assets, the only single share futures provide advantages of the investor to market their portfolio vulnerability
- Exchange traded contracts: The only share futures are exchange traded and also standardized contracts. Ergo it’s indicated by regulatory supervision in addition to being liquid, so which makes it simple to go long or short to the underlying stock or share
- Lower deal costs: Compared to trading the assets sparingly, trading single share futures offers the profit of lower deal prices, including different things like the leverage requirements
- Lower taxation: Because single share futures are futures contracts, and the profits from the own futures trades are payable in a lower and different rate compared to once you trade stocks.
Trading single share futures has a few drawbacks:
- Changing margin requirements: Because each contract’s tick size is 1, cost openings which is typical from the share stores may place the futures positions whatsoever, particularly when corrected to get the everyday margin conditions. As an instance a $5 difference at AAPL’s share cost may imply adding or exceeding $100.
- No share holder mentions: When you trade the one share futures contract, you don’t obtain any share holder statements, meaning there aren’t any voting rights or returns when the share overlooks
- Risk of shedding: Because only share futures trade on leverage, then there’s a probability of losing significantly more than that which you initially invested in the futures contract. This consequently requires you to track your only share futures positions usually.
While only share futures have a unique set of benefits and shortcomings, it’s perhaps not appropriate to anybody. Trading SSF’s are all perfect for managing your equity store risks also to create temporary benefits specially if you daily trade the SSF’s. The margin demands of the assets being traded under the SSF’s is also described as a limiting factor for the majority of traders. The greater the share cost could be that the lesser amount of contracts you can trade because of the margin conditions. Still at 20 percent, that isn’t a limiting factor.