Advanced Guide to Single Stock Futures: A Complete Roadmap from Margin to Live Trading

Many people are both curious and afraid of single-stock futures. The curiosity lies in the ability to leverage small capital for big gains, while the fear is that losses can come quickly and fiercely. In fact, single-stock futures are not that mysterious; as long as you understand the operating logic and risk control mechanisms, even beginners can play them confidently.

What exactly are single-stock futures? Understand the basics first

Single-stock futures are derivative products based on individual stocks, essentially an agreement to buy or sell a stock at a future date at a predetermined price. You sign a contract today at a certain price, agreeing to settle on a future date.

The most important point: the price of single-stock futures will follow the spot stock price, generally moving in the same direction. If the market is bullish, futures prices will be higher than the spot; if bearish, futures will be discounted. The leading or lagging nature of this price movement often serves as a reference for investors’ judgments.

In Taiwan, 1 contract of stock futures = 2000 shares = 2 lots of stock. That is, trading one TSMC futures contract is equivalent to buying or selling 2000 shares of TSMC. The logic for US stock futures is similar, but contract specifications and margin requirements differ.

Why do traders love trading single-stock futures? Three main attractions

1. Extremely low trading costs

The transaction fee for spot trading is 0.1425%, plus a 0.3% transaction tax on sales, totaling about 0.425%.

For single-stock futures? Fees are quoted per contract, with TSMC futures around NT$10–20 per contract. With a contract value of about NT$2 million, the fee cost is less than 0.001%, and the transaction tax is only 0.02%. For short-term and frequent traders, this is a huge advantage.

2. No worries about short selling

Short selling stocks requires borrowing shares and faces the risk of forced buy-ins at any time. Single-stock futures eliminate these hassles; there are no borrowing restrictions, and you only need to buy back before the contract expires. Operations are much more flexible.

3. No heavy tax on dividends and rights

Holding stocks to receive dividends involves paying additional health insurance premiums and dividend income tax, with high tax rates up to 30%, effectively cutting the dividend by about 30%.

But with single-stock futures, dividends and rights are directly returned as margin, completely tax-free. This is a big incentive for those wanting to participate in dividend-related trading.

Risks should not be underestimated; four major pitfalls to avoid

1. Liquidity may be insufficient

Trading volume of single-stock futures is far less than that of spot stocks. For less popular stocks, futures contracts have fewer orders and wider bid-ask spreads. When entering or exiting positions, you may not find favorable prices and might be forced to accept losses.

2. Margin calls can come at any time

Futures only require 5–10% margin to control the entire contract. Sounds great, but the risk is amplified. If prices move against you beyond a certain point, your margin will be depleted, and the broker will urge you to top up. If you cannot meet the margin call, your position will be forcibly liquidated, locking in losses.

3. High leverage is a double-edged sword

Leverage magnifies gains but also losses. Using 10x leverage on the Taiwan index futures, a 1% increase yields a 10% profit, but a 1% decrease results in a 10% loss. The cost of a wrong judgment is very high, so strict stop-loss is essential—no exceptions.

4. Cost of rolling over is hidden

Single-stock futures have expiration dates. To hold long-term, you need to roll over (from near-month to far-month contracts). During this process, the spread between near and far contracts can be unfavorable, potentially causing losses each time you roll. While holding long-term seems simple, costs can accumulate over time.

Summary: single-stock futures are most suitable for short-term traders, high-frequency traders, or flexible operators wanting to participate in dividend events. But if your capital is insufficient or your mindset unstable, it’s better to start with spot stocks first.

How is margin calculated? Don’t be scared by margin calls

Margin requirements for single-stock futures are categorized into three types:

Initial Margin: The amount paid when opening a position, usually 10–20% of the contract value, depending on stock volatility.

Maintenance Margin: The minimum required balance during holding, typically lower than initial margin. If your account equity falls below this level due to losses, the broker will urge you to top up.

Settlement Margin: The amount the futures exchange charges the broker, which is not directly related to you but affects overall market risk management.

How to calculate practically

For example, TSMC stock at NT$400, buying 1 futures contract:

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

If the stock price drops below NT$387.4, your margin will fall below NT$82,800, and you will be prompted to top up immediately.

Defense tip: Deposit more margin upfront to reduce leverage, giving more room for losses and less risk of margin calls. Of course, this requires having extra funds.

US stock futures margin is about 20%, slightly higher than Taiwan’s, but when hedging positions, margin requirements may be reduced.

Breaking down trading costs

When trading single-stock futures, you encounter these costs:

Brokerage fees: Vary by broker; high volume traders can negotiate better rates. Ranges from NT$10 to hundreds per contract, depending on product and volume.

Transaction tax: Taiwan’s regulation is 0.02%, much cheaper than the 0.3% on stocks.

Slippage: During volatile market conditions, your execution price may differ from your expected price. The more frantic the market, the larger the slippage.

Rolling costs: When rolling from near-month to far-month, if futures are in contango (futures pricier than spot), you pay more; in backwardation, you might gain.

Additional risks near expiration: As contracts approach expiry, spreads and volatility can increase, potentially leading to extra costs or losses if not careful.

Five pitfalls for beginners

1. Not all stocks have futures. Before trading a stock’s futures, check if the Taiwan Futures Exchange or US exchanges list it. Less popular stocks often have no futures.

2. Single-stock futures are T+0 trading. You can buy in the morning and sell at noon, or even sell first and buy later (short selling). Prices closely follow spot movements; always monitor spot prices simultaneously.

3. Lower volume than spot, wider bid-ask spreads. Less popular futures contracts may have spreads several times wider than the stock. Check order book depth before entering.

4. Large volume gap between near and far contracts. Near-month contracts usually have the highest volume; far-months are often very thin. Long-term holding requires tolerating unfavorable rollover prices.

5. Minimum price increments vary with stock price:

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

Also, mini futures exist, where 1 contract equals 100 shares, suitable for high-priced stocks or investors with limited capital.

How to trade without getting stopped out? Practical tips

Leverage should match your capacity

Using 10x leverage, a 1% move equals 10% profit or loss. A 2% adverse move could trigger margin calls. Beginners should start with 3–5x leverage to understand their risk tolerance and decision-making.

Stop-loss and take-profit orders must be set in advance

Unlike stocks, where you can buy and hold, futures are T+0. If the market reverses, losses can escalate rapidly. Before opening a position, plan your stop-loss and take-profit levels based on your risk appetite—no room for greed.

Entry and exit timing are critical

Stock investing can use dollar-cost averaging and staggered buying to lower costs. Futures, with short cycles and fast market changes, require precise timing for entries and exits. This demands market sensitivity and quick decision-making.

Don’t forget the contract expiration date

Every single-stock futures contract has an expiry date. Before expiry, you must decide to close, settle, or roll over. Long-term holding involves frequent rollovers, which can incur costs. If you’re a short-term trader, this is less of an issue; long-term investors need to calculate rollover costs carefully.

Single-stock futures vs. stock CFDs: how to choose?

Besides single-stock futures, there are stock CFDs (Contracts for Difference). Both allow small capital to control large positions, but their operation differs:

Features of single-stock futures:

• Regulated by exchanges, standardized contracts
• Clear expiration and settlement mechanisms
• Require brokerage fees and transaction taxes
• Leverage ratio set by exchange, about 4.9–7.4x
• Fewer product choices
• More complex account opening, strict qualification

Features of stock CFDs:

• Provided by trading platforms, flexible contract specs
• No expiration date, can hold indefinitely
• Usually only overnight fees and spread costs, no traditional commissions
• Leverage ratio set by platform, typically 1–20x, more flexible
• Wide range of products (stocks, forex, crypto, etc.)
• Easier account opening, simpler process

In summary: if you prefer short-term trading with clear rules and risk management, choose single-stock futures; if you want higher leverage, more product options, and no expiration worries, consider CFDs. But regardless of choice, always remember to set stop-loss and control risk.

Trading hours for Taiwan and US stock futures differ

Taiwan single-stock futures:

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

US stock futures:

• Continuous trading, Taiwan time 06:00–Next day 05:00
• No breaks, 24-hour trading

For Taiwan futures, trade within the specified hours; US futures offer more flexibility but watch out for time differences and liquidity.

Final words

Single-stock futures are a double-edged sword: small capital for big gains, low costs, tax advantages, but also high risks, margin calls, and leverage magnification of losses.

They are best suited for traders with a clear market view, stable mindset, and good risk control. If you’re still exploring, start with spot stocks or paper trading to understand the real risks before risking real money.

Remember: profits come from correct market judgment, but losses can come just as fast. Stop-loss and take-profit are essential for survival—never optional.