Stock and Futures Trading Guide: How to Calculate Margin and Understand Transaction Fees Once and for All

When it comes to investment tools, many people think of stocks, but in fact, stock futures and other derivatives can also help you maximize gains with less capital. However, futures trading has a higher entry barrier than you might imagine, especially regarding margin calculations and fee structures. Misunderstanding these can easily lead to pitfalls. This article will break down the core mechanisms of futures so you can get started quickly.

What exactly are stock futures?

Simply put, stock futures are standardized contracts with stocks as the underlying asset, fixed quantities, and expiration dates. The biggest difference from spot stocks is that futures prices fluctuate based on market expectations of the future movement of the underlying, often leading the spot price to reflect market sentiment.

For example, in Taiwan stocks, if investors are optimistic about the market, futures prices tend to be higher than the current stock price; if pessimistic, they are lower. That’s why many traders use futures prices as a reference for predicting the stock’s future trend.

The three main attractions (and three pitfalls) of futures

Why do some love futures, while others fear them?

The lure of low trading costs

In Taiwan, the transaction fee for stock trading is 0.1425%, plus a 0.3% transaction tax. Futures are different — fees are calculated per contract, for example, TSMC futures, buying 2 lots (which equals 1 contract), might cost only 10–20 NT dollars in fees, compared to about 570 NT dollars for buying 2 lots of stocks. The difference is significant. The transaction tax is only 0.02%, nearly 1/10 of the stock trading tax.

This can save high-frequency traders a lot of costs.

Unlimited short selling, but doubled risks

Shorting stocks involves the risk of forced buy-ins, but futures have no such restrictions. You can short as you wish, just need to buy back before expiration. It sounds more flexible, but it also means the risks of taking the opposite position are amplified.

More favorable tax treatment, but not guaranteed profit

Stock dividends are subject to additional health insurance and dividend income taxes, which can reach up to 30% for high-tax brackets. Futures, on the other hand, return the margin directly when dividends are paid, saving on tax hassle. But this advantage only pays off if your market judgment is correct.

The four major risks behind high returns

1. Liquidity risk from insufficient market depth

Not all stocks have corresponding futures, and even if they do, trading volume is often much lower than the spot market. Orders may go unfilled or be executed at unfavorable prices. Illiquid underlyings often have wide bid-ask spreads.

2. Passive liquidation due to margin calls

Futures require only 5–10% of the contract value as margin, which seems light but is actually leverage in disguise. If the market moves against you, margin can deplete quickly. When your account falls below the maintenance margin, the broker will ask for additional funds. If you can’t top up, your position will be forcibly liquidated.

3. Leverage is a double-edged sword

With 10x leverage, a 1% move in the underlying results in a 10% change in your account. Correct predictions can lead to huge profits, but wrong ones can wipe out your margin in seconds. Strict stop-loss discipline is essential to avoid losing everything or owing money.

4. The hidden costs of rollover (position transfer)

Futures have expiration dates, so holding long-term requires rolling over positions. This can result in gains or losses depending on the spread between near-month and far-month contracts. Many beginners overlook this additional operational risk.

How to calculate futures margin: core formulas and examples

To trade futures, understanding margin is crucial. It’s not just a deposit; it determines whether you can continue trading.

Types of margin

Initial margin — the amount you need to deposit to open a position

Maintenance margin — if your margin falls below this, the broker will ask for top-up

Settlement margin — the amount collected by the futures exchange from brokers to prevent default risk

Margin tiers for Taiwan futures

The Taiwan Futures Exchange sets different margin ratios based on stock volatility. Generally, three tiers:

Low-volatility stocks (like TSMC): Tier 1 — initial margin 13.5%, maintenance margin 10.35%

Medium-volatility stocks: Tier 2 — initial margin 16.2%, maintenance margin 12.42%

High-volatility stocks: Tier 3 — initial margin 20.25%, maintenance margin 15.53%

Margin calculation example

Using TSMC futures with a stock price of NT$400:

Initial margin = 400 × 2000 shares × 13.5% = NT$108,000

Maintenance margin = 400 × 2000 shares × 10.35% = NT$82,800

If the stock price drops below NT$387.4, your margin falls below NT$82,800, and the broker will notify you to top up to NT$108,000. If it drops further below NT$300 (25% of initial margin), the broker can forcibly close your position.

U.S. futures rules differ slightly: both initial and maintenance margins are 20% of the contract value, but holding hedged positions may reduce this ratio.

Breaking down trading costs

Besides margin, other costs eat into your profits:

Commission — varies by broker; high-volume traders can negotiate better rates. Even the cheapest fees add up over time.

Transaction tax — Taiwan’s futures transaction tax is 0.02%, lower than stocks but not tax-free.

Slippage — market volatility can cause your order to execute at a different price than expected, especially when rushing in or out.

Cost of contango/backwardation near expiry — futures close to delivery date often have larger spreads. Some commodities (like oil futures) may also incur storage and logistics costs.

Six things every beginner should know before entering

1. Not all stocks have futures

Before trading a stock’s futures, confirm that the exchange offers a listed futures contract for it.

2. Futures can be traded T+0, long and short are both possible

Unlike stocks, futures have no daily price limits, allowing you to buy and sell on the same day. You can go long first, then short, or vice versa. But this flexibility comes with higher operational risk.

3. Trading volume is often small

Illiquid futures may have wide bid-ask spreads, sometimes so large that even executing a trade results in a loss. Always check order book depth before entering.

4. Near-month contracts have high volume, far-months less liquidity

Most traders focus on contracts close to expiration, which have the highest volume. For long-term holding, consider rolling over to distant months periodically.

5. Minimum price increments depend on stock price

For stocks under NT$10, the minimum move is NT$0.01; for NT$10–50, NT$0.05; higher-priced stocks have larger minimum moves. This affects your entry and exit costs.

6. Small-cap futures are an option

One standard lot is 2000 shares, but Taiwan Futures Exchange also offers mini futures, with 1 lot equal to 100 shares. For investors with less capital or high-priced stocks, mini futures lower the entry barrier.

How to trade? Three core principles

Control leverage, don’t let leverage control you

10x leverage sounds exciting, but a 1% loss equals 10% of your account. Most beginners lose money because they overuse leverage. Start with 3–5x leverage, learn proper stop-loss discipline, then consider higher multiples.

Always set stop-loss and take-profit levels

Stock losses can be left to rebound, but futures require immediate action. When the market moves against you, margin depletes rapidly, often before you can react. Predefine your exit points; better to take a small loss than wipe out your account.

Timing is everything; don’t rely on diversification alone

Spot investors often use dollar-cost averaging, trading over time. Futures have short cycles, rapid price swings, and daily settlement. This method doesn’t work here. Precise timing of entries and exits is essential; otherwise, you risk being repeatedly squeezed by the market.

Futures trading schedule

Taiwan stock futures

Regular trading hours: 08:45 – 13:45

After-hours trading: 15:00 – 05:00 (next day)

Last trading day of the expiration month: 08:45 – 13:30 (early close 15 minutes earlier)

U.S. futures

Trading hours: 06:00 – 05:00 next day (Taiwan time, 24/7 trading)

U.S. futures are almost continuously traded, with no official trading breaks.

Conclusion

Stock futures are indeed a financial tool that allows you to maximize gains with less capital, but they also embody high risk and high reward. Success or failure often hinges on a single decision — whether you can accurately predict the market and maintain disciplined risk management.

Don’t be fooled by low transaction costs; they are superficial benefits. The real determinants of profit or loss are your ability to control leverage, stick to stop-loss rules, and seize the right timing. If you can’t do these, futures become a quick-money gambling game rather than an investment.

From margin calculations to fee structures, every detail can impact your trading results. Next time you enter a trade, double-check whether you truly understand these mechanisms.