A Complete Guide to Stock Futures: From Margin Calculation to Trading Strategies

In the stock market, besides buying and selling stocks, there is a derivative instrument that allows traders to leverage greater returns with less capital — single stock futures. Many investors are interested in futures but also feel unfamiliar and worry about complex calculations and huge risks. This article will use examples and detailed analysis to help you grasp the core mechanisms of single stock futures.

What are single stock futures?

The original purpose of futures was to help farmers hedge against crop price risks. Single stock futures apply this logic to the stock market — they are standardized contracts with a stock as the underlying asset, a fixed quantity, and an expiration date.

Key features of single stock futures include: fixed contract size, high correlation between price and stock, and two-way trading (long and short positions). Futures prices usually reflect market expectations of the future — when optimistic, futures prices are higher than the spot; when pessimistic, the opposite. This is why traders often use futures price trends to judge stock directions.

Why do investors prefer single stock futures?

1. Extremely low transaction costs

For example, in Taiwan stocks, the stock trading commission is 0.1425%, plus a 0.3% trading tax, totaling 0.425%. In contrast, the transaction fee for single stock futures is calculated differently — based on “cost per contract.”

Example: Buying 1 lot of TSMC stocks costs about NT$400,000 with a commission of NT$570; but buying 1 contract of TSMC futures (equivalent to 2 lots of stocks) costs only NT$10~20, a huge difference. Additionally, the futures trading tax is 0.02%, far lower than the stock trading tax, saving significant costs for frequent traders.

2. Short selling without worries

Short selling stocks requires dealing with forced buy-ins, but single stock futures have no such restriction. You can close your position before the contract expires, offering greater trading freedom.

3. Tax planning advantages

When investing in stocks, receiving dividends involves paying National Health Insurance contributions and dividend income tax, with high tax rates — some groups face up to 30%. In futures trading, dividends are directly returned as margin, completely avoiding these two taxes, making it relatively more advantageous.

Four major risks of single stock futures that cannot be ignored

1. Lack of liquidity

Compared to stocks, the order volume and trading volume of single stock futures are usually lower. Illiquid stocks have wider bid-ask spreads, which may prevent transactions at ideal prices or even face difficulty closing positions.

2. Margin call risk

Futures only require a margin deposit (about 5~10% of contract value), and leverage can amplify gains but also risks. If the market moves unfavorably, and the margin falls below the maintenance margin, brokers will require investors to top up. If not topped up promptly, positions will be forcibly liquidated.

3. The double-edged sword of high leverage

Leverage is a double-edged sword. When the judgment is correct, small capital can generate large profits; when wrong, losses can rapidly escalate. That’s why strict stop-loss mechanisms are essential in futures trading.

4. Cost of rolling over at expiration

Single stock futures have fixed expiration dates. To hold positions long-term, traders must roll over to the next month’s contract periodically. During this process, additional costs may be incurred or gains realized, which long-term futures holders cannot avoid.

Conclusion: Single stock futures are suitable for short-term traders, active traders, or investors interested in ex-dividend arbitrage. However, for large capital, liquidity risk should not be underestimated.

Complete analysis of the margin system for single stock futures

Futures margin is divided into three levels:

Initial margin: the amount required to open a position
Maintenance margin: the minimum margin to maintain the position
Settlement margin: the amount collected by the futures exchange from brokers to prevent default

When the market moves unfavorably, the margin gradually decreases with losses. If it falls below the maintenance margin, brokers will urge margin top-up. If it drops below 25% of the initial margin, brokers can directly force liquidation of your position.

How is the margin for single stock futures calculated?

Taiwan stock futures contract specifications

1 lot of Taiwan stock futures = 2 lots of stocks = 2000 shares. Buying or selling one futures contract is equivalent to trading 2 lots of stocks.

Margin ratios and tiers

The Taiwan Futures Exchange classifies futures into 3 margin tiers based on the volatility of individual stocks (stocks with particularly high volatility are set separately):

(Source: Taiwan Futures Exchange, updated Nov 2023)

Practical calculation example

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

• Initial margin = 400 × 2000 × 13.5% = NT$108,000
• Maintenance margin = 400 × 2000 × 10.35% = NT$82,800

If the futures price drops below NT$387.4, the margin will fall below NT$82,800, and the broker will urge a top-up. To avoid a margin call, investors can deposit more upfront, reducing leverage and still enjoying the low-cost advantage of futures.

Differences with US stock futures

US stock futures have initial and maintenance margins both at 20% of the contract value. If the account holds hedging positions, margin requirements may decrease.

Costs involved in trading single stock futures

Investors face the following main costs:

Commission: varies by broker; larger trading volume or position size often negotiates better rates.

Trading tax: Taiwan stock futures trading tax is 0.02%, much lower than stock trading tax.

Slippage: market volatility or low liquidity can cause actual transaction prices to deviate from expected prices, incurring additional costs. Slippage is especially prominent in fast-moving markets.

Premiums/discounts near delivery: as futures approach expiration, higher margin requirements may apply. The price difference between futures and spot (contango or backwardation) can widen, increasing holding or closing costs.

6 key points for beginners trading single stock futures

1. Not all stocks have futures contracts. Before investing, confirm that the target stock has corresponding futures available.

2. Single stock futures support T+0 trading, allowing buy-then-sell or sell-then-buy, offering high flexibility.

3. Trading volume is an invisible cost. Futures often have lower volume than stocks, and illiquid stocks have large bid-ask spreads, affecting actual transaction prices.

4. Differentiate between near-month and far-month contracts. Near-month contracts usually have higher volume but approaching expiration. For long-term holding, rollover before expiry is necessary.

5. Minimum price movement units depend on stock price ranges. Different price ranges have different tick sizes:

   • Under NT$10: NT$0.01
   • NT$10–50: NT$0.05
   • NT$50–100: NT$0.1
   • NT$100–500: NT$0.5
   • NT$500–1000: NT$1
   • Over NT$1000: NT$5

6. Smaller futures are more accessible. 1 lot of standard single stock futures = 2000 shares; mini futures = 100 shares, more friendly for investors with limited capital or interested in high-priced stocks.

How to trade single stock futures effectively?

Use appropriate leverage

Trading 1 lot of Taiwan index futures with 10x leverage means a 1% move in the index results in a 10% change in your account profit/loss. If the market moves against you, margin calls or forced liquidation can occur quickly. Leverage should be set according to personal risk tolerance, not blindly maximized.

Stop-loss and take-profit are essential

Stock investing can “buy and hold” waiting for rebounds. But single stock futures are T+0 with expiration dates, not suitable for indefinite holding. If the market moves unfavorably, quick stop-loss is necessary; otherwise, forced liquidation is likely. Therefore, setting reasonable stop-loss and take-profit points is the core discipline in futures trading.

Entry and exit timing are crucial

Stock investors are used to diversification and dollar-cost averaging, with longer time horizons. Single stock futures have short trading cycles, rapid price changes, and contract settlement, requiring precise timing for entries and exits. Relying on time alone is not enough.

Trading schedule for single stock futures

Taiwan stock futures trading hours

• Regular trading: 08:45 ~ 13:45 Taiwan time
• After-hours trading: 15:00 ~ 05:00 Taiwan time
• Last trading day of expiration month: 08:45 ~ 13:30 (closes 15 minutes early)

US stock futures trading hours

US stock futures trade 24/7, continuously: 06:00 ~ 05:00 next day Taiwan time, with “regular trading” and “after-hours trading,” but no market halt in between.

Summary: Investment logic of single stock futures

Single stock futures are a “small capital for big gains” financial instrument, leveraging a relatively low margin to control multiple times the underlying value. Traders enter with initial margin and add margins as the market moves to prevent default.

The core profit in single stock futures depends on accurately predicting market direction. This makes it inherently a high-risk, high-reward investment tool. Regardless of the derivative traded, remember: leverage amplifies gains but also risks. Strict stop-loss and take-profit mechanisms, moderate leverage control, and full risk awareness are the three lifelines for traders.

Investing in single stock futures is not reckless but a carefully planned trading game — provided you fully understand the margin operation, fee structure, and risk management methods of single stock futures.