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Single stock futures: How to trade the ups and downs of the stock market

by , 07 July 2015

If you're looking for a way to trade the stock market, one option to consider is single stock futures.

Single stock futures are financial derivatives that allow you to trade a large number of the shares listed on the Johannesburg Stock Exchange.

But single stock futures trading isn't for the conservative trader.

Read on to find out more…


What are single stock futures?


When you trade single stock futures, you’re entering a contractual obligation in which one party undertakes to sell a standardised quantity of shares for delivery at a predetermined future date and price. The other party agrees to buy the shares on the same terms.

This may sound a bit complicated, but let’s break this down…

Single stock futures trade on the Johannesburg Stock Exchange’s equity derivatives market. This means certain aspects of single stock futures trading is standardised.

For instance:
•    One single stock futures contract is equal to 100 underlying shares.
•    The underlying asset is standardised as it’s a share listed on the JSE.
•    The contracts are exchange traded through the JSE.


The risks of trading single stock futures


By trading the stock market with single stock futures, you take on a lot of risk. This is because futures are geared products. This gearing magnifies each movement in the underlying share price.

You achieve gearing through trading on margin. To open a trade, you put down a small deposit (usually between about 8% and 25%) of the total exposure and benefit or lose depending on the performance of the underlying shares.

Trading single stock futures can mean making ample profits from small share price movements. But you can also rack up large losses quickly too.

If you’re thinking about trading single stock futures, it’s vital you understand the risks involved and take steps to manage your risk when trading.

So there you have it. How to trade the ups and downs of the stock market.

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