Advantages and Disadvantages to Single Stock Futures

Single stock futures are a type of investment in which investors can take out a futures contract on a single stock. These investments are traded in many financial markets across the world. Here are some of the advantages and disadvantages of trading single stock futures.


One of the advantages of getting involved with single stock futures is that you can use leverage. If you are trading the stock market, you can typically only trade with a 1:1 leverage at the most. With single stock futures, you can get leverages that are much higher than that because you are actually trading a futures contract instead. If you know what you are doing, you could potentially make much higher profits on minimal movements in the underlying stock. 

Short Trading

Another benefit of trading single stock futures is that you can short trade. When trading in the regular stock market, you cannot short trade in most cases. With stock futures, you can short trade or trade long without any issues. This provides you with more flexibility and allows you to take advantage of down swings in the market. Instead of only having one way to make money, you now have more options.


When you trade single stock futures, in some cases you may be able to save money on commissions. Stock brokers will charge either a flat fee or a percentage of the trade. Some futures brokers are only compensated with the bid/ask spread on the trade. This could potentially save you money and make the trading more profitable for you.

Higher Risk

Even though leverage can be an advantage in some cases, it also adds quite a bit of risk to the process. When you are trading on leverage, there is always the chance that you could lose a significant amount of money. All it would take is a small movement in the opposite direction that you have chosen and your account could be blown out in no time. This means that you need to know what you are doing when you place a trade.

Low Volume

Another potential problem that you may have to deal with in the single stock futures market is low trading volume. Even though more people are starting to trade this type of security, there are not nearly as many traders as there are in the stock market. Because of this, you may not be able to get your order filled immediately when you place it. In addition to that, you could find large spreads between the bid and ask prices.

This means that you might end up overpaying for a particular trade. When this happens frequently, it can eat into your profitability and make it very difficult to be successful. When there is low trading volume, it also can increase the volatility of the trading overall. When a particular stock is popular, there may be more traders wanting to buy a stock futures contract on it than the market can support. 

blog comments powered by Disqus