An introduction to single stock futures
To understand how single stock futures
trading works, there are four basic concepts you need to get to grips with.
Let’s take a look at each of these in turn…
Single stock futures concept #1: The underlying share
All single stock futures contracts are based on the performance of an underlying share. In other words, the price of a single stock future derives its value from the current price of a specific share.
That’s why single stock futures are known as derivatives.
Each single stock futures contract is equal to 100 underlying shares.
Single stock futures concept #2: The initial margin
As single stock futures are geared instruments, they’re high risk. So when you trade them you need to pay an initial margin for each contract you trade.
The initial margin works a bit like a deposit and allows you to enter a trade. This deposit gives you exposure to a large value of listed shares. This is what gives single stock futures their gearing (or leverage).
The JSE’s Equity Derivatives Market quotes margin requirements for all shares you can trade single stock futures on.
Single stock futures concept #3: Gearing
You gain gearing with single stock futures as you only put down a portion of the total exposure you’re taking on with the initial margin.
The higher the gearing, the higher the risks as you’re more vulnerable to moves in the underlying share price.
Single stock futures concept #4: Mark to market or variation margin
When you trade single stock futures, you have to maintain your initial margin. This is known as mark to market or the variation margin.
If the single stock futures you’re trading fall in value, your broker will debit your account with the difference. If the trade rises in value, your broker will credit your account with the difference.
When you trade single stock futures, you must ensure you have enough money in your account to cover these variations. The last thing you want is a margin call. This is when your broker gets in touch demanding cash to make up a shortfall in your trading account.
Running strict stop losses will help you to know how much money you need in your account.
So there you have it. What you need to know to get stared when trading single stock futures.
*********** Hot off the press ************
The forex trading secret the experts don’t want you to know about
Do you find that none of the forex trading courses out there actually work? That’s because you need experience and time to bank real profits on the forex market.
I’m talking about profits of 74.07%, 145.99% and 16.03%. And I’ve got a way for you to make these gains without needing either experience or time.
That’s right, 236.09% gains could be yours without hassles and wasted time.
Click here to find out how.