Finance

Only the futures contracts that are sold in conjunction with many major economic index is, like the Standard & Poors index, single stock futures govern the future price of a single stock. These futures are normally reserved for stocks that enjoy a high volume of trade, and are therefore normally used for Fortune 500 companies. The reason why single stock futures are usually not used for smaller companies is because those smaller companies future stock price is more difficult to predict.

Stock futures were created to manage the inherent risks of owning stock that might lose its value. It locks the buyer into a set price, regardless of if that stock price rises. Likewise, there is an incentive for the seller as well. If the stock price falls in the future, then the seller will have made a good investment deal I buying the futures contract of that single stock at a higher price. So there is an upside to both the buyer and the seller to agree through the medium of single stock futures.

Different Kinds of Single Stock Futures
As previously mentioned, the companies that usually are traded on a single stock futures basis are companies that are heavily traded in the stock market. Lets use the example of Texaco, one of the worlds most powerful oil companies. If you believe that, sometime in the future, the price of Texaco stock will fall, then you can buy a futures contract related to that oil stock.

Your motivation to do this lies in the confidence that you have an agreement to buy that Texaco stock at a higher price than everyone else can, because you bought a futures contract mandating that price to you. It is a kind of government bond, only it is issued for single companies, and not countries.