Make good use of stock futures to seize investment opportunities

        Compared to spot trading, stock futures have advantages such as higher capital utilization efficiency, convenient short side operations, low trading costs, and long trading times, which can assist investors in more flexibly grasping market opportunities and conducting risk management. This issue of 'Finance Column' takes buying TSMC futures as an example to introduce the system, margin fees, and risks of stock futures, providing investors with reference.

        What is stock futures?

        In Taiwan, stock futures are futures contracts launched by the Taiwan Futures Exchange, including individual stock futures with publicly quoted entity stocks as underlying assets, and ETF futures with ETF as underlying assets. At present, the Futures Exchange provides hundreds of stock futures and dozens of ETF futures, allowing investors to participate in the market of underlying assets through stock futures. For example, if you are optimistic about the future stock price performance of TSMC, in addition to directly buying TSMC stock, you can also buy TSMC futures to participate in the rising market; On the contrary, if the stock price is expected to decline, TSMC futures can be directly liquidated without the need for short selling or borrowing, making trading strategies more flexible.

        In addition, some individual stock futures and ETF futures also offer after hours trading hours, from 5:25 pm to 5:00 am the next day. When there are significant fluctuations in the international market after the close of trading in Taiwan, investors can adjust their positions or engage in hedging through night trading to reduce overnight risk. Popular individual stock futures such as TSMC Futures and UMC Futures, as well as ETF futures such as Yuanta Taiwan 50 ETF Futures, all offer after hours trading sessions.

        margin system

        1、 Margin ratio and calculation method

        Futures trading adopts a margin trading system, where investors only need to pay a certain percentage of the underlying asset value as margin to establish corresponding futures positions. This system can improve the efficiency of fund utilization, but at the same time, it can amplify investment gains and losses due to leverage effects. Therefore, it is necessary to fully understand the relevant regulations and risks before trading.

        Individual stock futures are classified into different margin levels based on the underlying risk, and different ratios of maintenance margin to original margin are applicable; ETF futures have different margin amounts for each commodity.

                The calculation methods for maintenance margin and original margin are: "Maintenance margin=futures trading price x contract multiplier x maintenance margin application ratio" and "Original margin=futures trading price x contract multiplier x original margin application ratio".

        2、 Notification of high-risk accounts and proxy write offs

        Due to the margin system adopted in futures trading, the futures association will continuously monitor the account risks of traders and implement risk control measures. When the account equity is lower than the maintenance margin, the futures trader will issue a high-risk account notification; When the intraday account risk indicator is below 25%, futures traders have the right to execute proxy write offs. There are other relevant regulations regarding the exemption of offsetting products during post market trading hours. For details, please refer to the announcements or relevant regulations of various futures traders.

        Overall, the margin recovery and proxy write off mechanism aims to control account risk. When trading stock futures, investors should not only pay attention to their account status and reserve appropriate excess margin, but also understand that margin is not the maximum possible loss. When the market fluctuates violently or liquidity is insufficient, over loss may still occur. Therefore, the size of positions and trading risks should be properly controlled.

        Example: Establishing a TSMC futures position

        Assuming an investor takes an additional TSMC near month futures, the transaction price is NTD 2310. Due to TSMC futures being a margin level 1 commodity, the original margin application ratio is 13.5%, and the maintenance margin application ratio is 10.35%. The contract unit for TSMC futures is 2000 shares.

        The calculation of maintenance margin and original margin is as follows:

        Original margin=NTD 2310 × 2000 × 13.50%=NTD 623700

        Maintaining margin=NTD 2310 × 2000 × 10.35%=NTD 478170

        Therefore, when investors establish a long or short position in TSMC futures, they need to pay at least NTD 623700 as the original margin. The theoretical leverage ratio is approximately 7.41 times (=1/13.5%). Investors can also deposit excess margin (2 to 3 times the original margin) based on their own risk tolerance to reduce the actual leverage level.

        Next, consider the following scenario:

        If the futures price rises from NTD 2310 to NTD 2330, the profit from taking an extra bite is (NTD 2330-2310) x 2000=NTD 40000

        If the futures price drops from NTD 2310 to NTD 2235, the additional loss will be (NTD 2310-2235) × 2000=NTD 150000, and the equity will decrease to NTD 473700, which is lower than the maintenance margin NTD 478170. Investors must replenish the margin to the original margin level within the deadline notified by the futures commission merchant.

        If the futures price continues to fall below NTD 2075 (inclusive), the equity amount will decrease to NTD 153700 (inclusive) or below, which is lower than the original margin level of 25% NTD 155925. Futures traders have the right to execute proxy write off operations.

        In addition, the Futures Exchange may adjust the margin ratio based on market fluctuations. If the market continues to develop in an unfavorable direction, investors may face the risk of margin recovery or offsetting on their behalf. When the market experiences severe fluctuations or consecutive limit downs, it may also be difficult to close positions at expected prices due to insufficient liquidity. Therefore, it is recommended to reserve appropriate excess margin to reduce leverage and enhance the ability of the position to withstand market fluctuations.

        Small cap stocks/ETF futures: an investment tool that lowers trading barriers

        To provide investors with more flexible trading options, the futures exchange also offers small individual stock futures and small ETF futures. The contract unit for small individual stock futures is 1/20 of that for general individual stock futures (2000 shares), while the contract unit for small ETF futures is 1/10 of that for general ETF futures (10000 beneficiary units). This is suitable for investors with small fund sizes or the need for phased layout, and helps to improve the flexibility of investors' fund utilization and position allocation.

        Oriental Securities Corporation provides professional stock futures trading services

        Oriental Securities Corporation has been deeply involved in the Taiwan capital market for a long time, providing complete Taiwan futures and options trading services. In 2026, it will add smart order functions, supporting advanced commission tools such as price touching trading and mobile stop profit/stop loss. Investors can use the computer version of "Oriental Petrochemical (Taiwan) New Gold Earn" and the mobile version of "Oriental Petrochemical (Taiwan) e-Finger Earn" for trading and position management, improving trading efficiency and risk control capabilities.

        Conclusion

        Stock futures have leverage, long short trading, and hedging functions, while small cap/ETF futures can further lower the participation threshold. If investors can combine appropriate risk management and professional trading platforms, it will help improve the efficiency of fund utilization and seize market opportunities.

        Welcome to open an online account: https://eoa.osc.com.tw/eOpen/#/home?mkCode=00000000000000000000300000

        ※ Reference materials: Futures margin for individual stocks/ETFs on the Futures Exchange, contract units for various commodities on the Futures Exchange, and introduction to Oriental Securities Corporation's smart orders.

        ※ Anti fraud promotion: Oriental Securities Corporation reminds investors to seek legal futures traders for futures trading and not to entrust underground futures or overseas brokers with unknown sources.

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