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Derivatives Investment

Single Stock Futures (SSF)

Single Stock Futures consist of two important components – a futures contract and a common stock. The combination of these two components creates the futures contract with the common stock as the underlying asset.

Single Stock Futures is a contract which parties enter into either to buy or to sell stock in the future. The parties must adhere to the terms of the contract. When entering into a Single Stock Futures contract the prices for buying and selling will be fixed in order to deliver the shares or arrange for a cash settlement in the future. On a date when both parties enter into a contract, they will agree on the prices for buying and selling in the future. But there will be no settlement on that date. Delivery and settlement of the price for stocks will be done in the future when contract's maturity date arrives.

Advantages of Single Stock Futures Trading
  • Speculating and short-selling possibilities
  • If you believe that the stock price will rise, you can make a profit by taking a long position in the Single Stock Futures market. If you believe the stock price will fall, you can make a profit by taking a short position in the Single Stock Futures market. Although you can take a short position in the Single Stock Futures market, this might not be possible in the stock market because conditions for short-selling do not always exist.

  • Utilizing Leverage
  • To initiate a Single Stock futures contract you need to put up an initial margin that is equivalent to approximately 10% of the contract value. With such a small investment outlay, you can end up with a high ROI. For example, if the stock price rises 10%, a 500,000 Baht investment in the cash market can make 50,000 Baht profit for a 10% return. But by investing in a Single Stock Future contracts worth roughly 500,000 Baht, only 50,000 Baht is required for the margin (if the SET50 Index is equal to 500), so a gain of 10% for the market becomes a ROI of 100%. This strategy works when there is an existing up trend in the market.

  • Hedging
  • If you own a portfolio of stocks and believe that the market has risen too sharply over the past few weeks, and if you expect the index to fall back, you can benefit by using Single Stock Futures trading as a hedging tool. Conversely, by holding a short position in the Single Stock Futures market you can still make a profit even if your stock portfolio is showing a loss. CONFIRM? THE ORIGINAL TEXT WAS AN INCOMPLETE SENTENCE.

Risks Associated with Single Stock Futures Trading
  • Monitor your portfolio
  • Investing in Single Stock Futures contracts involves money that is placed on margin only, and the amount invested is far less than the value of the underlying stock. If investors make a profit, on a mark-to-market basis the margin will increase. Conversely, if investors make a loss on a mark-to- market basis the margin will be reduced. If the margin level is reduced to a maintenance margin, investors will be required (i.e. a call margin) to add margin money until it reaches the level of the initial margin. Therefore, investors should monitor their position and margin closely.

  • A limited lifespan
  • Single Stock Futures contracts have a limited lifespan. Investors who enter into a Single Stock Futures contract cannot get the dividend payment. Investors should also take note of the maturity date.

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