A Complete Guide to Single Stock Futures: From Basic Concepts to Practical Trading

What Are Single Stock Futures?

Single stock futures are derivative products based on the stocks of listed companies. They are standardized contracts with fixed quantities, underlying assets, and expiration dates. Unlike spot stocks, futures prices are closely correlated with the underlying stock prices but often lead market expectations.

When the market is optimistic about the future, futures prices tend to be higher than spot prices; when expectations are bearish, futures may trade at a discount to the spot. Therefore, observing futures price movements can serve as an important indicator for assessing stock market trends.

Taiwan’s single stock futures are designed with a 2:1 ratio, 1 contract = 2 shares = 2,000 shares, allowing investors to participate in the market with less capital.

The Three Core Advantages of Single Stock Futures

Significantly Lower Transaction Costs

For example, in Taiwan, the transaction fee for spot stocks is 0.1425%, plus broker discounts. In contrast, futures transaction fees are calculated per contract, usually between NT$10–20 (compared to NT$600–900 for buying 2 lots of stocks, which is a clear advantage).

Regarding transaction taxes, the Taiwan government imposes a 0.3% tax on stock sales, while futures are taxed at 0.002%, roughly 1% of the stock tax burden, which is especially beneficial for high-frequency traders.

Flexible Long and Short Operations

Short selling spot stocks is restricted by mandatory buy-in requirements and high borrowing costs. Single stock futures are not subject to these constraints; as long as the position is closed before expiration, short selling is more convenient and flexible.

Greater Tax Planning Flexibility

Dividends from spot stock investments are subject to second-generation health insurance contributions and dividend income tax, which can impose a tax burden of up to 30%, effectively reducing dividends by about 30%. Using single stock futures for ex-dividend trading refunds the margin directly and does not require paying the aforementioned taxes, offering an advantage for tax-sensitive investors.

The Four Major Risks of Single Stock Futures

Liquidity Risk

Compared to spot stocks, the order volume and trading activity for single stock futures are generally lower. Especially for less popular stocks, bid-ask spreads can be wider. Investors should pay attention to trading volume to avoid difficulties in closing positions or unfavorable execution prices.

Margin Call Risk

Single stock futures require only 5–10% of the contract value as margin. If the position moves against you, the margin will gradually decrease. When the margin falls below the maintenance level, brokers will issue a margin call. Failure to meet the margin requirement may result in forced liquidation.

Leverage Risk

Leverage is a double-edged sword. Correct judgments can amplify profits, but misjudgments can also magnify losses. It is essential to set disciplined stop-loss mechanisms; otherwise, a single mistake could lead to account liquidation.

Expiry Roll-Over Risk

Single stock futures have fixed expiration dates. To hold positions long-term, traders need to roll over contracts to the next month. During this process, basis spreads may fluctuate, potentially resulting in additional gains or losses.

Overall, single stock futures are more suitable for short-term trading, frequent operations, or strategies focused on ex-dividend arbitrage. However, for large capital sizes, liquidity risk should not be overlooked.

Details of Margin Requirements for Single Stock Futures

Three Types of Margin

Initial Margin: The amount required to open a position, based on a percentage of the contract value.

Maintenance Margin: The minimum margin level that must be maintained during the holding period. If the margin falls below this level, brokers will issue a margin call.

Settlement Margin: Margin collected by the futures exchange from brokers to prevent default risk.

Margin Calculation Method

The Taiwan Futures Exchange sets three margin tiers based on stock volatility. For recent data:

Tier 1 (Low Volatility Stocks): Maintenance margin 10.35%, Initial margin 13.50%
Typical stocks: TSMC (2330), UMC (2303), AU Optronics (2409)

Tier 2 (Medium Volatility Stocks): Maintenance margin 12.42%, Initial margin 16.20%
Typical stocks: Acer (2353), Chicony (5381), Inventec (2356)

Tier 3 (High Volatility Stocks): Maintenance margin 15.53%, Initial margin 20.25%
Typical stocks: Zhaoxin (3035), Moderna Vaccine (6547), Wan Hai (2615)

Example Calculation

Suppose TSMC’s stock price is NT$400, and you buy 1 lot of TSMC futures:

Initial Margin = 400 × 2,000 × 13.5% = NT$108,000

Maintenance Margin = 400 × 2,000 × 10.35% = NT$82,800

If the stock price drops below NT$387.4, the margin will fall below NT$82,800, prompting a margin call from the broker.

For US stock futures, margin requirements are slightly different, with both initial and maintenance margins at 20% of the contract value.

Breakdown of Single Stock Futures Trading Costs

Investors engaging in single stock futures face several costs:

Commission: Set by each futures broker; investors can negotiate discounts. Large or high-volume traders may receive preferential rates.

Transaction Tax: The tax rate for Taiwan’s stock futures is 0.002%, much lower than for stocks.

Slippage Cost: Market volatility or order execution at different prices can cause the actual transaction price to deviate from expectations, especially in fast-moving markets.

Cost of Roll-Over Near Expiry: As contracts approach expiration, the basis spread between futures and spot prices may widen, increasing rollover costs. Special attention is needed in the last trading days of the contract month.

Three Key Points for Trading Single Stock Futures

Strict Leverage Control

For example, trading 1 lot of Taiwan index futures with 10x leverage means a 1% market move results in a 10% profit or loss on the account. If the market moves against the position, it could lead to margin shortfall or forced liquidation. Beginners should start with lower leverage and gradually increase.

Disciplined Stop-Loss and Take-Profit

Unlike spot stocks, which can be held long-term waiting for rebounds, futures are traded on a T+0 basis. If the market moves unfavorably and stop-loss is not executed promptly, the position could be liquidated instantly. It is crucial to set clear stop-loss and take-profit levels before entering trades, within personal risk tolerance.

Precise Entry and Exit Timing

Diversification and dollar-cost averaging strategies are difficult to implement effectively in futures due to short trading cycles and high volatility. Traders need to pay close attention to timing entries and exits, capturing market turning points.

Single Stock Futures vs Stock CFDs

Besides futures, investors can also choose CFDs (Contracts for Difference) for stock trading. CFDs share similar advantages with futures but also address some of their disadvantages.

CFD trading offers a broader range of underlying assets, including international stocks, cryptocurrencies, forex, and commodities, with risk management tools like trailing stops.

Trading Hours for Taiwan and US Stock Futures

Taiwan Stock Futures Trading Hours

• Regular session: 08:45–13:45
• After-hours trading: 15:00–05:00 (next day)
• Last trading day of expiry month: 08:45–13:30 (closes 15 minutes early)

US Stock Futures Trading Hours

• 06:00–Next day 05:00 Taiwan time (24-hour continuous trading, no breaks)

US futures provide a longer trading window, facilitating global investor participation.

Six Important Tips for Investing in Single Stock Futures

1. Not all stocks have corresponding futures; confirm whether the underlying stock has listed futures before participating.

2. Single stock futures support T+0 trading, allowing same-day buy and sell (long or short) operations, with prices highly correlated to spot stocks.

3. Trading volume is generally lower than spot stocks, especially for less popular stocks, so bid-ask spreads may be wider; pay attention to liquidity.

4. Differentiate between near-month and far-month contracts: near-month futures usually have higher trading volume but closer expiration dates; far-month futures are suitable for longer-term holding but require rollover before expiry.

5. Minimum price increment differs from spot stocks:

6. Small lot single stock futures are available, with 1 contract = 100 shares, mainly designed for high-priced stocks, more friendly for investors with limited capital.

Summary

Single stock futures are leveraged financial derivatives that allow small investments with low costs and tax advantages. Investors need to pay an initial margin as performance guarantee and adjust margins according to market volatility to avoid default.

Each futures contract has a fixed expiry date; at expiration, traders must decide whether to close, settle, or roll over the position. Hedging or arbitrage strategies can be employed using inverse positions or price differentials between spot and futures.

Profitability depends on accurate market predictions and involves high risk and high reward. Regardless of choosing futures or CFDs, strict stop-loss and take-profit mechanisms should be established, as leverage amplifies both gains and losses. Beginners are advised to start with lower leverage and more liquid assets to build trading discipline and risk awareness gradually.