Dow Futures Trading Explained (Part I)
July 25th, 2009
Trade Dow Futures.Dow Futures began trading at the Chicago Board of Trade (CBOT) in 1997. Every day Dow Futures begin trading on CBOT at 8:20 AM EST. NYSE opens at 9:30 AM EST. So before the open of NYSE, this one hour and ten minutes of Dow Futures trading usually provides professional traders, financial managers and financial reporters good idea of the market sentiment for the day.
Just multiply the value of the Dow Jones Industrial Average (DJIA) with $10 in order to find the market value of the Dow Futures. For example, suppose the DJIA is at 8500 points, a single Dow Futures contract will have a value of ($10)(8500)= $85,000. In other words, the value of the Dow Futures contract increases/decreases by $10 for every point increase/decrease in the DJIA. Learn candlestick patterns.
This provides futures traders with an in build leverage of 10. So if a trader believes that the market is going to rally huge, he can take long position in Dow Futures and make a huge profit in case his optimism turns out to be true. Learn swing trading.
The CBOT began trading a mini sized Dow Futures contract values at $5 times the average on its electronic platform in April 2002. Although the mini sized Dow futures contract hasn’t matched the popularity of the CME E-min stock index contract like the E-mini S&P 500 Futures contract, it has grown quickly in popularity.
DJIA accounts for about 20% of the market value of all US equities. The Dow Index was first published in 1896. Dow Jones Industrial Average (DJIA) is an index of 30 large capitalizations, blue chip stocks traded on the New York Stock Exchange (NYSE).
Movement in the DJIA is sensitive to the news surrounding the 30 companies represented in the index particularly that with the highest prices as Dow is a price weighted index. Today DJIA is the most widely quoted market indicator in newspapers, radio, television and electronic media around the world.
Most countries with a vibrant stock market also have a futures contract on a stock index that represents that economy. It’s not surprising that some of the most popular futures contracts are related to equity markets.
Stock-index futures are an integral part of the stock market’s daily activity. Currently more than 70 stock-index futures contracts are traded on at least 20 exchanges around the world.
For example in US, futures contracts are available on the Dow Jones Industrial Average (DJIA) as well as the broader Standard & Poor (S&P) 500 Index and the technology oriented NASDAQ-100 index known as Dow Futures, S&P 500 Futures and NADAQ-100 Futures.
Similarly United Kingdom has FTSE-100 futures contract, Hong Kong Hang Seng Futures Contract, France CAC 40 futures contract and Dow Jones Euro STOXX 50 covers selected stocks in the euro economy.