A single stock futures (SSF) contract is a standardized futures contract with an individual stock as its underlying security. Trading in SSFs stopped in 2020 since they proved unpopular, though it remains legal. When sold in the US, each contract typically was for the delivery of 100 shares of the underlying stock. SSFs are more durable and trade in higher volumes in India, the EU, and elsewhere than when available in the US.
SSFs do not convey voting rights or dividends like stocks, and unlike stock options, which give the holder the right but not the obligation to buy or sell the underlying stock, SSFs require a stock transfer or the cash equivalent when the contract ends. Below, we take you through how SSFs are traded, how they came to be traded in the US, how that trading ended, how traders think of their risks, and how they differ from other securities like stock options.
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 holding the underlying stock.
- Single stock futures are the least traded equity derivatives; they haven't been traded in the US since 2020.
Understanding Single Stock Futures (SSF)
Like all futures contracts that aren't cash-settled, SSFs require the buyer to take delivery of the underlying instrument at the contract's expiration. For SSFs, the underlying security is a particular stock, typically 100 shares per futures contract.
Traders use futures to hedge or speculate on the price movement of the underlying asset. For instance, a corn producer could use futures to lock in a specific price and reduce their risk. Alternatively, anyone could speculate on the price movement of corn by going long or short using futures contracts. SSFs work the same way, with the underlying not being a commodity or index but an individual company's stock.
For a long time in the US, SSFs were banned, primarily because of interagency disagreements between the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC). The disagreement was over which agency had authority over them. (For more, see our History of Single Stock Futures.) The Commodity Futures Modernization Act (2000) legalized trading in single-stock futures and put them jointly under the SEC and CFTC. Exchanges began bringing SSFs to the market in 2002 after further legislation lowered their trading fees. Before this, investors could only hedge their stock positions with options or index futures.
Expectations were high when the market for SSFs opened. "They can barely contain their excitement at Chicago's financial exchanges and the nation's brokerage firms that specialize in futures trading," stated a Bloomberg article after interviewing major traders in New York and Chicago. Fearful of a speculative bubble led by less experienced investors, the writer added, "When futures contracts on single stocks become available ... for trading by individual investors, most people ought to run, not walk, from them." The writer need not have worried—there would be no clamor toward or away from the exchanges for them.
Trading continued until 2020, when the last US exchange, OneChicago, closed, halting the last trading of SSFs in the U.S. By then, still too few Americans knew about them, there were remaining issues getting SSFs to the market given the dual-regulatory authority of the SEC and CFTC, and investors were used to employing options and other products to hedge or speculate on the price moves of individual stocks. They remain legal but are off the market until an exchange comes forward to offer them.
The Global Market in Single Stock Futures
Trading volumes in SSFs can be volatile. For example, while the global trading volume for single-stock futures rose 42% in 2021 from 2020, a year later, it had fallen 15%. Borsa Istanbul in Turkey, the Korea Exchange, and the National Stock Exchange of India (NSEI) usually lead in worldwide SSF trading volume, with the exchanges seeing trading volumes of about 159 million, 90 million, and 35 million contracts, respectively, in February 2024. ICE Futures Europe and the NSEI are typically the leaders in notional value.
Wild swings in trading are not unusual for SSFs. Two prominent platforms for them, the ICE Futures Europe and the Johannesburg Stock Exchange, have volumes spiking and declining rapidly by millions each month, which we can see below, charting their 2021 to 2024 monthly volumes:
:max_bytes(150000):strip_icc()/Gratton1-54c627d9980346869fa1e0db33cbcbbb.jpg "Single Stock Future (SSF): Meaning, Risks, Benefits (1)")
Single Stock Futures vs. Stock Options
Traders use SSFs to hedge a stock position or leverage 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, SSFs allow leveraged speculation on a decline in the share price without engaging in short selling. SSFs streamlined and reduced costs compared with similar options strategies and individual stock short selling.
The risks are like futures contracts in that leverage could amplify losses, not just gains. While SSFs trade on exchanges outside the US, they are still among the least traded equity derivatives. That leads to larger bid-ask spreads and a less liquid marketplace.
Below, we compare SSFs with stock options, the more commonly used derivatives for hedging or speculating on stock price changes.
| Single Stock Futures (SSFs) | Stock Options | |
|---|---|---|
| Definition | A contract to buy or sell a single stock at a future date at a specific price. | A contract that gives the holder the right, but not the obligation, to buy or sell a stock at a given price on or before a specific date. |
| Commitment | Both parties must fulfill the contract at expiration. | The buyer has a right, but not an obligation, to take the transaction. The seller (writer) has an obligation if the option is exercised. |
| Risk | Potentially unlimited risk for both parties. | Limited risk for the buyer; potentially unlimited risk for the seller. |
| Expiration | Has a specific expiration date. | Has a specific expiration date. |
| Settlement | They are usually settled in cash or by delivery of the underlying stock. | Can be settled in cash or by delivery of the underlying stock, depending on the type of option. |
| Premium | No premium is paid upfront. | The buyer pays a premium upfront to the seller. |
| Leverage | Provides leverage, as a small margin deposit controls a larger value of the underlying stock. | Provides leverage, as the option price is usually much less than the stock price. |
| Rights and Obligations | Both parties have obligations to fulfill the contract. | The option buyer has rights, and the seller has obligations. |
Rivalry Between CFTC and SEC
The rivalry between the CFTC and the SEC since the former's creation in 1971 has often meant a far more fragmented regulatory landscape than many investors realize. Often, the regulators are treated as partners, but this isn't always—and frequently hasn't been—the case. First, there are the typical interagency battles for resources and clawing greater authority from the other—the usual stuff of bureaucratic agency friction. But it's also the case that in recent decades, exchanges have been creating products that fall conceptually between securities (the province of the SEC) and commodities and futures (the domain of the CFTC). SSFs are just one example.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act reset interagency relations between the two, and they've been far more cooperative in the years since. Still, there's the two agencies' divergence in their legislative mandates, with the SEC founded to protect investors and the CFTC to support market innovation. This has been the background for much of the story around the mainstreaming of cryptocurrency in recent years. For example, readers might take CFTC Chairperson Rostin Behnam to be siding with the SEC when he said in late 2023 that more regulation was needed in that space, lest another FTX-like disaster occur. Perhaps, but he was also saying that the CFTC should have the crypto market to itself. "This is an inflection point where Congress needs to weigh in and, I think, create a new road map," Behnam said, calling for passage of a bill for the CFTC"to regulate, through registration and other basic tools, these cash exchanges."
What Are the Benefits of Trading Single Stock Futures Over Directly Trading Stocks?
First, SSFs provide leverage, allowing traders to control a larger position with a smaller capital outlay. Second, they offer the ability to go long or short easily, enabling traders to speculate on both rising and falling markets. Lastly, SSFs can be used for hedging purposes, allowing investors to protect their stock portfolios against adverse price moves.
How Are Single Stock Futures Used in International Trading, and What For?
SSFs have long been considered a foreign style of trading within the U.S. Indeed when SSFs were legalized in the US in the early 2000s, an investment fund executive told Barron's he might shift some of his funds from commodities to SSFs, saying, "Some people might think that's un-American." Outside SSFs, while not the most popular derivative, trade well for use in leverage and speculative short and long positions on individual stocks. In addition, investors holding portfolios of stocks can use SSFs to protect against a drop in the stock price, since they can short sell SSFs to offset potential losses in their equities. Additionally, portfolio managers may employ SSFs to adjust their exposure to certain stocks or sectors without having to buy or sell the underlying shares.
How Profitable is it to Trade Futures?
Futures trading can potentially be very profitable, but it also comes with increased risks because of the leverage used to amplify trades. Market volatility and wrong way bets can lead to significant losses and also the risk of margin calls.
The Bottom Line
SSFs are financial derivatives that enable traders to speculate on the future price of individual stocks without owning the underlying shares. These contracts offer leverage, allowing traders to control substantial positions with a relatively small capital investment. SSFs can be used for both speculation and hedging purposes, enabling investors to take long or short positions to profit from anticipated price moves or protect against potential portfolio losses. Although SSFs have unique benefits such as flexibility and leverage, they also come with risks inherent to futures trading, including the possibility of significant losses. Consequently, SSFs are primarily used by experienced traders and investors.
Trading in US SSFs halted in 2020 when the last exchange offering them pulled out of the market. They are traded worldwide, with the highest volumes in Turkey, the Republic of Korea, and India.
