Unlike commodities futures, there is no obligation to take possession of the underlying asset. Expirations typically occur in the third week of each month.Ĭontracts are settled in cash, rather than the underlying equities that comprise the index. How Are Dow Jones Futures Traded?ĭow futures contracts trade quarterly, which means contracts expire in March, June, September and December. This means if the Dow Jones Index rises 100 points, the buyer of the futures contract gains $500, while the seller loses $500, according to the contract multiplier. The most popular Dow Futures contract, the E-Mini, has a multiplier of 5.
This means the higher priced stocks within the Dow Jones Index have a greater impact on its value than the lower priced stocks.įor Dow Jones futures, a contract multiplier determines the dollar value of each point of price movement in the underlying index.
It’s important to note that the Dow is a price-weighted index, which means stocks with higher share prices are given greater weight in the index. The Dow Jones Index value is determined very simply, as it tracks the performance of the 30 stocks within the index.
How Are Dow Jones Futures Prices Determined? In essence, both parties are betting they can predict the price of the Dow Jones Index at the time the contracts are settled (their expiration date). If the Dow is at 30,000 when you enter the contract, and it reaches 32,000 before the contract expires, you would generate a significant profit, while the party who sold the contract to you would incur a loss. If you believe the Dow Jones Index will increase in value, you can go long on a futures contract. Trading Dow Jones futures is essentially a bet that you can predict whether the price of the DJIA will move in a particular direction by a certain point in time. How Does a Dow Jones Futures Trading Strategy Work?
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Now that we’ve defined them, let’s take a closer look at how to trade Dow Jones Futures. The Dow provides broad exposure to the stock market, although it is not quite as broad as the S&P 500. The Dow Jones Index is one of the oldest and most popular equity indexes, tracking 30 high-profile stocks across a diverse range of sectors. These contracts allow traders to profit by speculating on the future price movement of the Dow Jones Index.įutures contracts work by obligating traders to buy or sell a pre-set amount of an asset for a pre-set price at specified point in the future. What Are Dow Jones Futures?ĭow Jones futures (or DJIA futures) are binding contracts pegged to the spot price of the Dow Jones Industrial Average (DJIA) Market Index. Let’s take a closer look at the fundamentals of Dow Jones futures: What they are, how they work, when you can buy them and how you can trade them.
Yet indexes also offer many benefits for active traders: Liquidity, the possibility of lower fees and the ability to speculate on the future movement of the broader market.ĭow Jones futures represent one of the most popular of these products, with hundreds of thousands of contracts changing hands daily. This is one reason why index funds - which attempt to track the whole market, segments of the market, or specific baskets of stocks - are such a popular tool for investors. Trading individual equities involves a degree of risk, because even if the overall market trend is bullish, one company’s fortunes can always rise or fall. Login Open Account General Trading Education How to Trade Dow Jones DJIA Futures How to Trade Dow Jones Futures
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