What Are Single Stock.
Single stock futures are futures contracts on individual stocks. There are currently over 80 well-known stock futures such as IBM, eBay, and Philip Morris. These futures products provide investors with a cost-effective vehicle for participating in U.S. equities markets.
A stock futures contract is an agreement to deliver shares of a specific stock at a designated date in the future, called the expiration date. Most stock futures contracts are not held until expiration because traders typically offset their position - selling if the trader is long or buying if the trader is short.
The price of an equity futures typically tracks the price of the underlying instrument nearly tick for tick, so trading strategies followed in the stock market are generally transferable to the stock futures market. Single stock futures may therefore be used with a broad range of trading strategies and for a variety of portfolio management needs.
When a stock future is traded, both the buyer and seller put up a good faith deposit called margin. The margin requirement for security futures is generally 20% of the underlying value of the securities, although this requirement may be lower if the investor also holds certain offsetting positions in cash equities, stock options, or other security futures in the same securities account.
Advantages of Single Stock Futures
• With margin requirements of 20%, single stock futures provide a highly capital efficient way to participate in equities.
• No uptick is required to establish a short position.
• Short sellers may benefit from eliminating the costs and inefficiencies associated with the stock loan process.