Here is an explanation of Single Stock Futures:
Over the years, the stock market has afforded opportunities for investors to share in the growth of the U.S. economy. Additionally, new exchange-traded financial instruments like stock options and stock index options and futures have been created to help manage the risks of stock ownership and to take advantage of stock market moves. Now changes in federal regulations have paved the way for the introduction of security futures (SSFs). This new instrument provides a link between two kinds of financial markets — securities and futures — and makes it easier to hedge portfolios and capture market opportunities. This revolutionary new product marks a quantum leap in the range of investment opportunities available to both institutional and retail investors. Single stock futures make equity trading available to a wider audience therefore, delivering greater efficiencies and liquidity to the underlying market.
A SSF contract is simply a standardized agreement between two parties to buy or sell 100 shares of a particular stock or exchange traded fund (ETF) in the future at a price determined today. Futures contracts are bought and sold on federally regulated exchanges, and for SSFs, regulation is by both the Securities and Exchange Commission and the Commodity Futures Trading Commission. SSFs also require reduced capital upfront compared to trading on the traditional cash market as the trader is only required to pay margin. Therefore, capital investment only amounts to margin payable which frees up capital for other investments. SSFs allow traders to profit no matter what direction the market moves. If a trader is bearish on the market, the trader can sell a contract, then make a profit by buying that contract back later when the price decreases. This may decrease the need and costs associated with stock borrowing.
SSFs also allow investors to switch exposure from one stock to another without disturbing the underlying stock holding. On NQLX, SSF contracts are generally available with expirations for the first five calendar quarters (expiring in March, June, September and December) and in the first two non-quarter calendar months. For example, on July 1st, SSFs would be offered that expire in July, August, September, and December of the current year, and in March, June and September of the next year. By taking a position in a SSF, you can lock in a price today at which you’ll buy and sell stocks as much as 15 months from now. The minimum price fluctuation, or “tick” size, of NQLX SSFs is one cent per share, or $1 per contract.
Why Single Stock Futures Matter for Systematic Trend Following
The core features of SSFs that make them relevant to systematic trend following are the same features that make global futures markets preferable to direct equity markets for systematic approaches: leverage through margin, bidirectional trading, standardized contract structure, and exchange regulation.
The margin requirement means the trader does not tie up 100% of the position’s value in capital. The remaining capital can be deployed elsewhere, either in other positions or held as reserve. For a systematic approach running multiple positions across multiple instruments simultaneously, capital efficiency is not a minor consideration. It is a structural advantage that allows larger diversification across more positions without requiring proportionally larger capital.
The bidirectional capability is the most important feature for a complete systematic trend following approach. A trend following system that can only go long on individual stocks captures the uptrend portion of the approach but misses the most profitable periods in systematic trend following history, which have often occurred during market declines. SSFs remove the friction of stock borrowing for short positions, which has historically been a constraint on short selling in individual equities. The ability to sell a SSF contract to go short at the same cost and with the same mechanics as buying one to go long creates genuine bidirectional symmetry.
The standardized contract structure means the same systematic rules that apply to commodity futures, currency futures, and equity index futures apply equally to SSFs. A trend following system does not need special rules for SSFs. The price-based entry and exit criteria, the volatility-based position sizing, and the stop loss placement all work identically because the underlying instrument is a futures contract regardless of what it references. The same rules that enter a long position in crude oil on a 20-week high can enter a long position in a single stock SSF on a 20-week high. The mechanics are identical.
The expansion of trend following from global macro futures into individual equity SSFs is consistent with the principle that all markets are the same for systematic purposes. Price is the input. Rules are the process. Whether the price belongs to Japanese yen, crude oil, the S&P 500 index, or a single technology company’s stock makes no difference to a rule that fires when price breaks above a defined lookback high.
Frequently Asked Questions
What is a single stock futures contract?
A standardized agreement to buy or sell 100 shares of a specific stock or ETF at a price determined today, for settlement at a future date. SSFs trade on regulated exchanges and are subject to oversight by both the SEC and the CFTC. They require only margin rather than the full value of the position, freeing capital for other uses. The tick size is one cent per share or $1 per contract on NQLX.
How do SSFs benefit systematic trend following traders?
By providing margin efficiency, bidirectional symmetry, and standardized contract mechanics that apply the same rules used for commodity and currency futures to individual equities. The reduced cost of short selling compared to stock borrowing makes the short side of equity trend following accessible at the same transaction cost as the long side. The standardized structure means no special rules are required — the same systematic approach applies.
How long can a SSF position be held?
NQLX SSF contracts are available with expirations up to approximately 15 months out, covering the first five calendar quarters plus the first two non-quarter months. A trend following position in a SSF can therefore be held for weeks or months as the trend develops, consistent with the time horizons that systematic trend following requires to capture the large moves that drive long-run returns.
Trend Following Systems
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