The global equity market is massive, but access to it is deeply uneven, even more so if you are not in a developed country. I believe single stock perpetual futures, built on crypto rails, are a great way to meet the global demand for equity exposure past the limitations of traditional finance.
Why Single Stock Perpetual Futures?
Access to Equity Returns
Large swaths of the world's population are locked out of equity returns. Each of the Mag7 stocks are worth more than the entire equity markets of many countries, including developed ones in Europe. Access to foreign equity returns is not easy, requires access to a brokerage, and often comes with high fees.
Perpetual single stock futures on crypto rails would allow anyone to gain exposure to the equity returns without having to open a brokerage account at low fees. They would be available to anyone with a crypto wallet, which is a far more democratic and accessible market.
Fractional Ownership
I know fractional ownership is available, but it is still not accessible as it should be and only some brokerages offer it. This would allow you to buy just a few dollars' worth of that Berkshire Hathaway stock without having to worry about the minimum investment amount.
Fair Leverage
Your brokerage can change the terms of the leverage at any time, and they often do. Shorting is particularly perilous and I've had a few experiences myself with Interactive Brokers where they changed the terms of the leverage on me overnight, asking for 5x the margin without any warning. Futures give you a fair and transparent way to trade with leverage, and you can always see the margin requirements and funding rates in advance, with a cap and a floor.
Financial Engineering
I believe single stock futures would open a whole new world of financial engineering opportunities. Here are a few examples I can think of:
24-Hour Trading + Price Discovery
Crypto is the first truly 24/7 market. Even FX markets have a break. By allowing 24-hour trading on the perps, you can trade around the clock without having to worry about the stock market hours. It would also provide a way to gauge where the market is headed as the news roll in but the stock market is closed.
Leverage
Futures are inherently levered financial instrument, and it's no secret that people love leverage. That's why there has been a fairly consistent contango in the crypto futures markets normally in the double digits. Perps would allow you to trade with leverage, with a transparent funding rate formula known in advance.
Precise Hedging
Own an ETF but want to underweight a particular stock? You would be able to do that with single stock futures pretty cost efficiently without needing a brokerage to find you a borrow.
Long Stock + Short Future = Voting Rights.
Bankers love financial engineering. That's no secret. Right now the most effective way to get voting rights in a company is to buy the stock, try to get seats on the board, and then try to influence the company. This is a risky and arduous process, and it doesn't always work out. Proxy wars are even more difficult. Options can be used to hedge the downside risk, but they have finite lives and nonlinear payouts.
Having liquid futures on a stock would allow you to effectively strip out the voting rights and trade them separately, which is currently only possible to large institutional investors with hefty ISDAs in place.
Why Single Stock Futures Aren't Already a Thing?
They are certainly not a new idea, and in crypto they are by far the most popular type of derivative. In tradfi however, they have not caught on as much. Institutional investors wouldn't really need them as they likely have better products such as equity swaps that wouldn't require them to post as much collateral. That leaves retail, and most retail investors have not been deemed sophisticated enough to understand the risks of trading futures.
In the USA there was a single stock futures exchange called OneChicago, but it was shut down in 2020. As far as I am aware, the largest existing single stock futures markets are in South Africa and India.
Why Not Tokenized Stocks?
Tokenized stocks are coming and I am a firm believer of everything-tokenized future. That said, as someone who deeply looked into launching a tokenized real-estate fund, tokenized real-world assets are a huge legal and regulatory lift given that they are securities and not derivatives. They will be offered largely to the same client base that exist on their brokerage. I also think that market for tokenized stocks will be dominated by existing big players who have the domain expertise and an existing distribution network.
Risks
Regulatory Risks
This is probably the biggest risk and an area that has to be worked out. The client base for single stock perps would be global, but the regulatory environment is not. I would not offer these perps in the US, and it wouldn't really be the target market anyway.
Looking For A Co-Founder
I am looking for a co-founder to build this. I have +10 years of experience in quantitative finance, and while I wouldn't be a coding prodigy I am competent and have built a few hefty algorithmic trading systems in the past. You can read a bit more about me here. Ideally my co-founder would have a technical background, preferably with blockchain experience to complement my own background.
I am geographically mobile and can meet in person pretty much anywhere, but I am also happy to work remotely. I have no other obligations at the moment and can dedicate to this project full-time for at least the next 6 months.
Happy to have a chat with anyone who would be interested in this project even if just to bounce ideas.