"Security future" is a term used to collectively describe futures on individual stocks, known as single stock futures, and futures on narrow-based indices. Authorized in December 2000 by the Commodity Futures Modernization Act, a single stock futures contract represents 100 shares of the underlying stock that will be delivered on a specific date. These may be traded in a securities or futures account and on margin.
Typically, 20% of the contract value is required for minimum and maintenance margin. However, this varies if the investor has other collateral such as cash, stock, or futures contracts. Money managers and other investors can take advantage of leverage with single stock futures contracts.
For example, if a share of stock is worth $50, then one single stock futures contract is worth $5000. The investor would need to have $1000 ($50 × 100 shares × 20%) in his account. If the stock goes up by $10, the contract is worth $6000, and the return on the original $1000 investment is 100% ($6000−$5000/$1000).
By contrast, if you purchased 100 shares of the $50 stock ($5000) and it goes up by $10, your return is 20% ($1000/$5000). Leverage works both ways. Losses are also magnified when underlying stocks go down in value. Another advantage of single stock futures is no "uptick" rule when selling these contracts short.
Selling is as easy as buying, without the burden of borrowing shares. Investors use single stock futures to hedge individual stock positions, to spread trade between same stock sectors, to spread trade with equal-sized contracts, and to neutralize specific stocks or sectors from a specific fund position.
Typically, 20% of the contract value is required for minimum and maintenance margin. However, this varies if the investor has other collateral such as cash, stock, or futures contracts. Money managers and other investors can take advantage of leverage with single stock futures contracts.
For example, if a share of stock is worth $50, then one single stock futures contract is worth $5000. The investor would need to have $1000 ($50 × 100 shares × 20%) in his account. If the stock goes up by $10, the contract is worth $6000, and the return on the original $1000 investment is 100% ($6000−$5000/$1000).
By contrast, if you purchased 100 shares of the $50 stock ($5000) and it goes up by $10, your return is 20% ($1000/$5000). Leverage works both ways. Losses are also magnified when underlying stocks go down in value. Another advantage of single stock futures is no "uptick" rule when selling these contracts short.
Selling is as easy as buying, without the burden of borrowing shares. Investors use single stock futures to hedge individual stock positions, to spread trade between same stock sectors, to spread trade with equal-sized contracts, and to neutralize specific stocks or sectors from a specific fund position.
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| Security Future |
