SSF contracts are 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, is one cent per share, or $1 per contract.

The Mechanics of Trading SSFs  [top]
The mechanics of trading SSFs are fairly straightforward. If you believe that the price of a particular stock will go up, you buy or "go long" a SSF contract. If you think the price is headed down, you sell or "go short" the futures contract (and in futures trading, you don't have to wait for an uptick as you might have to when shorting stocks, so going short is as easy as going long).

As an example, let's say you bought an April futures contract on XYZ Company at a price of $50 during the first week of February. This gives you the obligation to buy XYZ at $50 when the future expires on the third Friday of April unless you sell the futures contract first. In other words, you can end your agreement to buy XYZ by selling the April futures contract at any time before the contract ceases trading. If XYZ's price at the time is greater than $50, you make $100 for each dollar it is higher, and you lose $100 for each dollar it is lower.

The procedure for selling is just the opposite. You can offset your obligation at any time on a short contract by buying it back before you would need to deliver XYZ shares. If XYZ's price at the time is less than $50, you'll make $100 for each dollar it's lower, and you'll lose $100 for each dollar it's higher.

Profits and Losses  [top]
If you sell a futures contract at a higher price than you bought it, you'll make money. If you sell it for less than you bought it, you'll lose money. It doesn't matter whether you first went long or short. The formula is the same:

• [Price Sold - Price Paid] x 100 shares x Number of Contracts = Profit or Loss

Let's say you went long (i.e., bought) 5 contracts of XYZ futures at $50 and sold them one month later at $55. Your profit will be:

• [$55 - $50] x 100 shares x 5 = $2,500

If, however, you went short 5 contracts of XYZ at $48 and bought them back at $57, your loss would be:

• [$48 - $57] x 100 shares x 5 = ($4,500)

These calculations don’t include commissions paid to your broker. As in stock trading, the cost of commissions are subtracted from your profits to determine your net profit or added to your losses to determine your total loss. You should also be aware that futures brokers may calculate commissions on a round-turn basis—that is, commission covers both the cost of opening and closing a position. Stock commissions are typically calculated separately for each side of a transaction.

Margins and Leverage  [top]
Whatever the initial margin level is at any given time, remember that margin can be your best friend or your worst enemy. For the sake of example, let's assume an initial margin level of 20% in our examples of: 

1) going long a single stock futures on ABC Company at a $50 trade price and closing your long position at $55, or 

2) going short a single stock futures contract on ABC Company at a $48 trade price and closing your short position at $57. The margin level represents 20% of the value of the contracts traded for calculating the return on initial margin in these two trades.

Example of going long at $50 and closing the position at $55:

• Initial Margin at $50: [20% x $50] x 100 shares x 5 contracts = $5,000

  Gain on position if closed at $55: $2,500
  Return on margin: $2,500/$5,000=50.0%

Example of going short at $48 and closing the position at $57:

• Initial Margin @ $48: [20% x $48] x 100 shares x 5 contracts = $4,800

  Loss on position if closed at $57: ($4,500)
  Return on margin: ($4,500)/$4,800 = (93.75%)

The importance of this illustration cannot be emphasized enough: In futures trading, you can lose more than your initial margin deposit. Never base the number of contracts you trade on the level of the initial margin. If you have not traded futures before, consult your broker or financial advisor about the risks involved.

Security futures products are available for trading at this time. Below is a link to the security futures products risk disclosure statement.  You should read the disclosure statement before investing.  Security futures products are not suitable for all types of investors. There is substantial
risk of loss in trading futures and options. Risk Disclosure - posted October 14, 2002