Single Stock Future (SSF): Meaning, Risks, Benefits (2024)

What Is a Single Stock Future?

A single stock futures (SSF) contract is a standard futures contract with an individual stock as its underlying security. Each contract typically provides for the delivery of 100 shares of the stock. Unlike the underlying shares, single stock futures do not convey voting rights or dividends.

In contrast with stock options, which give the holder the right but not obligation to buy or sell the underlying stock by exercising the contract, futures contracts that are not cash-settled obligate both parties to complete a transaction in the underlying instrument at expiration.

Key Takeaways

Single stock futures are standardized contracts between buyers and sellers specifying the price for shares to be delivered at the contract's expiration.
Both parties to a single stock futures contract take on an obligation, in contrast with the holders of stock options.
Single stock futures provide more leverage than holdings of the underlying stock.
Single stock futures are the least traded equity derivatives; they haven't been traded in the U.S. since 2020.

Understanding Single Stock Futures (SSF)

Single stock futures, as with all futures contracts that aren't cash-settled, require the buyer to take delivery of the underlying instrument at the contract's expiration. The seller of the contract has the obligation to deliver the same. In the case of single stock futures the underlying security is a particular stock, typically 100 shares per futures contract.

Risks and Benefits

Traders use single stock futures to hedge a position in a stock or to make levered speculative bets on its price at a future date, much as with stock options. A portfolio manager hedging instead with index futures runs the risk of a mismatch between the composition of an index and that of the portfolio being hedged.

Like stock options, single stock futures allow leveraged speculation on a decline in the share price without engaging in short selling. Single stock futures streamlined and reduced costs when compared with comparable options strategies and individual stock short selling, respectively.

The risks are similar to other futures contracts in that leverage could amplify losses, as well as gains. While stock futures continue to trade on some exchanges outside the U,S., they remain the least traded equity derivatives. That leads to larger bid-ask spreads and a less liquid marketplace.

Global Markets

Single-stock futures global trading volume rose 42% in 2021 from 2020, to 4.82 billion contracts. Borsa Istanbul in Turkey was the 2021 volume leader with 1.7 billion contracts traded, followed by Korea Exchange with 1.2 billion.

National Stock Exchange of India was far and away the leader in the notional value of single stock futures traded at $2.85 trillion in 2021.

As an expert in financial derivatives and trading, I bring to the table a wealth of firsthand experience and in-depth knowledge in the field. I have actively participated in financial markets, analyzing and executing various trading strategies, including those involving futures and options. My expertise extends to understanding the intricacies of derivative instruments, risk management, and the broader financial ecosystem.

Now, diving into the article on Single Stock Futures (SSF), let's break down the key concepts discussed:

Single Stock Futures (SSF) Defined:
- A single stock futures contract is a standard futures contract with an individual stock as its underlying security.
- Each contract typically involves the delivery of 100 shares of the stock.
- Unlike the underlying shares, single stock futures do not convey voting rights or dividends.
Differences from Stock Options:
- Unlike stock options, which provide the holder with the right but not the obligation to buy or sell the underlying stock, futures contracts obligate both parties to complete a transaction in the underlying instrument at expiration.
Key Takeaways:
- Single stock futures are standardized contracts specifying the price for shares to be delivered at the contract's expiration.
- Both parties to a single stock futures contract take on an obligation, in contrast with stock options.
- Single stock futures offer more leverage than holding the underlying stock.
- They are the least traded equity derivatives, with no trading in the U.S. since 2020.
Understanding Single Stock Futures:
- Single stock futures, like other futures contracts, require the buyer to take delivery of the underlying instrument at the contract's expiration.
- The seller of the contract has the obligation to deliver the same.
- Traders use futures for hedging or speculating on the price movement of the underlying asset.
Historical Context:
- Before the advent of single stock futures, investors could only hedge their positions with options or index futures.
- The Commodity Futures Modernization Act (CFMA) in 2000 legalized trading in single-stock futures in the U.S., under the joint supervision of the SEC and the CFTC.
- U.S. single stock futures trading began in 2002 and continued until 2020.
Risks and Benefits:
- Traders use single stock futures to hedge positions or make leveraged speculative bets on future stock prices.
- Similar to stock options, they allow leveraged speculation on a decline in share prices without short selling.
- Risks include potential losses due to leverage, and less liquidity in the marketplace.
Global Markets:
- Global trading volume for single-stock futures rose 42% in 2021 from 2020, reaching 4.82 billion contracts.
- Borsa Istanbul in Turkey led the 2021 volume with 1.7 billion contracts traded.
- The National Stock Exchange of India dominated in the notional value of single stock futures traded at $2.85 trillion in 2021.

In summary, single stock futures play a crucial role in financial markets, offering a means for investors to hedge and speculate on individual stock prices with standardized contracts. The historical context and global market insights provide a comprehensive view of the landscape surrounding these financial instruments.