Chicago Mercantile Exchange (CME) launched cash-settled single-stock futures on July 27, allowing investors to bet on 55 US equities, including Nvidia, SpaceX, and TSMC ADRs, along with small-scale contracts for 22 different names, CNBC reported.
The futures allow investors to hedge or engage in speculative trading without having to actually trade any shares of the underlying stocks. These contracts offer leverage and are less complex than options, as they are cash-settled based on the closing price of the linked stock at expiration.
As the world's largest derivatives exchange, CME is betting that, with the rise of retail trading and the limited supply of hot initial public offering stocks in the current market, aiming to turn around the lackluster debut from about 25 years ago when it struggled to gain popularity.
Unlike options, CME said single-stock futures provide leveraged exposure without requiring investors to understand the relatively complex variables that measure how changes in stock price, volatility, time, and interest rates affect derivative prices. The product's purpose is to allow investors to establish long or short positions in companies whose shares are in short supply.
For example, during SpaceX's recent IPO, investors who were unable to obtain shares due to limited allocations of the hot stock could use futures to establish positions more capital-efficiently.
Traders said the simplicity of futures compared with options should appeal to retail investors, who generally prefer trading instruments they understand.
CME's single-stock futures will be tradable five days a week for 23 hours a day—far longer than the usual U.S. equity market hours of 9.30am to 4.00pm.
