A Complete Guide to Single Stock Futures: From Beginner to Practical Strategies, Margin, Costs, and Analysis

What are single-stock futures? Why should investors pay attention?

Single-stock futures are essentially standardized contracts based on a single stock as the underlying asset, specifying quantity, delivery time, and delivery method. Unlike physical delivery of stock spot transactions, single-stock futures allow investors to leverage a smaller amount of capital to control larger positions and profit from price differences.

The origin of futures can be traced back to agricultural societies, created by farmers to hedge against crop price fluctuations. Today, the financial derivatives market has applied this mechanism to stocks, exchange rates, commodities, and more. Single-stock futures are such a product—they enable traders to participate in stock price movements without holding actual shares, capturing potential gains.

The price trend of single-stock futures is highly correlated with the spot stock, but usually leads it. When the market is optimistic about a stock’s future, futures prices tend to be higher than the spot; vice versa. This price difference creates arbitrage opportunities for well-informed, quick-reacting investors.

Why are single-stock futures attracting more and more investors? Three core benefits

Lower transaction costs compared to spot stocks

For example, in Taiwan stocks, buying or selling stocks incurs a handling fee of 0.1425%, plus a 0.3% transaction tax, totaling about 4.43‰. The situation is completely different for single-stock futures:

Handling fees are calculated per contract, and investors can even negotiate with brokers. For TSMC futures, 1 contract equals 2 lots of Taiwan stocks (with a principal of NT$4,000 requiring margin of about NT$108,000). Handling fees can be negotiated down to NT$10–20 per contract, much cheaper than hundreds of NT dollars for spot trading.

Regarding transaction tax, single-stock futures are taxed at 2‰, which is 1% of the spot stock’s 3‰, making it especially friendly for frequent traders.

Flexible long/short switching without short sale restrictions

Short selling stocks requires facing the risk of insufficient margin and forced buy-ins, but single-stock futures are not subject to this restriction. As long as positions are closed before expiration, investors can freely switch between long and short positions without worrying about forced buy-ins. This is a huge advantage for traders skilled at capturing short-term reversals.

No tax burden on dividends

Holding spot stocks to receive dividends involves double taxation: health insurance contributions and dividend income tax, with high tax rates approaching 30%. In contrast, futures traders do not receive dividends—during ex-dividend dates, the exchange refunds the price difference directly to the margin account, completely avoiding tax issues, making it more efficient.

The hidden risks of single-stock futures: four major risks that must be acknowledged

Liquidity risk is the easiest to overlook

Compared to actively traded spot stocks, the order book and trading volume of single-stock futures are usually lower. This means investors may face:

• Difficulty closing positions when desired
• Wide bid-ask spreads, prices far from expectations
• During market volatility, difficulty exiting quickly

This is especially true for less popular stocks, where low liquidity often translates into hidden costs.

Margin call risk can lead to forced liquidation

Single-stock futures require only 5–10% of the contract value as margin, which amplifies both gains and risks. If the market moves unfavorably, margin levels will decrease. When the account equity falls below the “maintenance margin,” brokers will issue margin calls; if investors do not top up to the “initial margin,” brokers have the right to forcibly close positions, often at unfavorable prices, resulting in heavy losses.

Leverage risk demands strict discipline

10x leverage sounds attractive, but it also means that a 1% adverse move can cause a 10% loss in the account. Traders lacking stop-loss discipline may ultimately suffer catastrophic losses.

Roll-over risk is often overlooked by beginners

Single-stock futures have fixed expiration dates. Long-term holders must roll over to later-month contracts before expiry. During rollover, basis changes can generate additional costs or gains—this is a skill that futures investors need to master.

Summary: single-stock futures are most suitable for short-term traders and high-frequency traders. If you have large capital and are sensitive to liquidity, proceed with caution.

Understanding the margin mechanism of single-stock futures

Three-tier margin system

The futures market adopts a three-tier margin structure to ensure trading safety:

Initial margin is the amount required to enter a position, representing the initial collateral to fulfill the contract.

Maintenance margin is the minimum account equity needed to maintain the position. If the account falls below this level, brokers will require additional funds to bring it back up to the initial margin level.

Settlement margin is collected by the exchange from futures brokers to prevent default risk.

How is margin calculated for single-stock futures? Practical example

Taiwan stock single-stock futures contract specifications: 1 contract = 2,000 shares (equivalent to 2 stock lots)

Different stocks have different margin ratios based on volatility, divided into three tiers:

• Tier 1 (low volatility): initial margin 13.5%, maintenance margin 10.35% Examples: TSMC (2330), UMC (2303)

• Tier 2 (medium volatility): initial margin 16.2%, maintenance margin 12.42% Examples: Taiwan Cement (1101), MediaTek (2454)

• Tier 3 (high volatility): initial margin 20.25%, maintenance margin 15.53% Examples: Chih Yuan (3035), Moderna Vaccine (6547)

Example calculation: Suppose TSMC stock price is NT$400, and you want to buy 1 TSMC futures contract

• Contract total value = 400 × 2,000 = NT$800,000
• Initial margin = NT$800,000 × 13.5% = NT$108,000
• Maintenance margin = NT$800,000 × 10.35% = NT$82,800

If the stock price drops below NT$387.4, the account equity falls below NT$82,800, triggering a margin call. To avoid forced liquidation, investors can deposit more margin upfront, reducing leverage.

U.S. stock futures have a slightly different standard: initial and maintenance margins are both 20% of contract value, but if the position is hedged, the ratio may be lowered.

What are the hidden costs of trading single-stock futures?

The commission fee seen when placing an order is just the tip of the iceberg:

Handling fees: vary by broker; experienced clients can negotiate discounts based on trading volume and position size.

Transaction tax: Taiwan’s stock futures tax is 2‰, much lower than the 3‰ for spot stocks.

Slippage costs: during market volatility, actual transaction prices often deviate from the displayed bid/ask. Fast markets (like after-hours in U.S. stocks) can have significant slippage, severely impacting intraday traders.

Premiums/discounts near expiry: as contracts approach expiration, futures prices may diverge further from spot prices. Holding positions until delivery may force traders to roll over at unfavorable prices, incurring additional costs.

Six key points for beginners trading single-stock futures

1. Not all stocks have futures contracts Before trading, confirm whether the underlying stock has listed futures. Generally, only the top 100 Taiwan stocks by market cap have futures; small-cap stocks are rarely available.

2. Single-stock futures support T+0 trading Can buy and sell on the same day, buy first then sell, or sell first then buy—much more flexible than spot stocks. But be aware of contract expiration limits.

3. Trading volume is often much lower than spot “Easy to enter, hard to exit” is common with less popular stocks’ futures. Bid-ask spreads can be 5–10 bps, and execution may not be at ideal prices.

4. Near-month and far-month contracts differ Near-month futures have higher liquidity but approaching expiration; long-term traders must complete rollover before expiry. Far-month contracts have lower liquidity.

5. The minimum price movement unit differs from spot stocks

6. Smaller contracts are more suitable for retail traders Besides the standard 1 contract = 2,000 shares, Taiwan Futures Exchange also offers mini contracts (1 contract = 100 shares), designed for high-priced stocks, requiring less capital.

How to trade single-stock futures in practice?

Step 1: Precisely control leverage

Suppose an investor trades 1 Taiwan index futures contract with 10x leverage. A 1% move in the index causes a 10% change in the account profit/loss. If the market moves against the position, margin calls will arrive quickly, often before additional margin can be deposited, leading to forced liquidation.

Proper approach: Based on personal risk tolerance, set a reasonable leverage ratio (recommended 3–5x). It’s better to earn less but stay in the game longer.

Step 2: Set strict stop-loss and take-profit mechanisms

Unlike spot stocks, which can be held long-term after being “stuck,” futures are T+0 and have expiration dates. Not setting stop-loss is playing with fire.

Before trading, determine:

• Profit target (close immediately upon reaching)
• Loss limit (exit if price falls below this level)

Stop-loss and take-profit points should be within your risk tolerance. Never violate discipline just because you believe in a rebound.

Step 3: Choose optimal entry and exit timing

Spot investors often use “dollar-cost averaging,” but this doesn’t work well with futures. Futures have very short cycles (hours to days), and markets change rapidly. DCA can cause positions to be opened at the worst times.

Correct mindset:

• Wait for clear technical signals (breakouts, support rebounds, moving average convergence)
• Enter at points with the best risk/reward ratio
• Choose near-month or far-month contracts based on expected holding period
• Monitor fundamental changes closely and adjust positions quickly

Single-stock futures vs stock spot vs CFD (Contract for Difference)

Each tool has its strengths; investors should choose based on their trading style:

CFD contracts are popular among beginners due to ease of operation, flexible leverage, and diverse assets. However, watch out for overnight costs and platform risks.

Taiwan stocks vs US stocks futures: trading hours differ

Taiwan stock futures have two trading sessions:

• Regular trading hours: 08:45–13:45 Taiwan time
• 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:

• Continuous trading from 06:00 to 05:00 next day Taiwan time
• No breaks in between, suitable for global investors

Investors should choose trading hours based on their routines and market liquidity.

Final reminder: single-stock futures are high-risk, high-reward tools

The appeal of single-stock futures lies in “small capital, big control”—leveraging small funds to control large positions. But this is also the most dangerous aspect. Every year, investors suffer from over-leverage and lack of discipline leading to margin calls.

Always remember: ✓ Single-stock futures are suitable for short-term and high-frequency traders, not for long-term investing ✓ Margin calls and forced liquidations are common risks; must be preemptively managed ✓ Never trade without a stop-loss and take-profit plan ✓ Trading volume and liquidity are often overlooked; less popular stocks’ futures are especially risky ✓ Leverage is a double-edged sword; proper control is key to survival and profit

For traders seeking stock derivatives, options, futures, and CFDs are all options. It’s recommended to practice with demo accounts, deeply understand the risk mechanisms, and only trade with real funds after gaining sufficient experience to succeed in the futures market.