The Definition of Dow Futures
The expenditure of the Dow futures is ofttimes quoted before the inventory bazaar opens as an indicator of how the marketplace Testament proceed during the trading lifetime. Trading Dow futures is one method traders header to Income from the monetary worth changes of the Dow Jones Industrial Criterion. Much investors who don't Commerce futures can end the Dow futures as a forecasting object.
Identification
Dow futures are futures contracts in the troop of fairness index futures. Futures are standardized contracts allowing two parties to consent to get or sell particular commodities or financial instruments with delivery at a period in the outlook. Inventory index futures are contracts for the delivery of cash Identical to the cost of a particular inventory index, such as the Dow Jones Industrial Criterion DJIA) or the SP 500. Dow futures are for the delivery of the worth of a particular multiple of the DJIA.
Function
Dow futures contracts are traded on the futures exchanges. A trader can suffrage to administer a Commerce by buying contracts or extended with sold contracts. Traders who acquire expect the DJIA to elaboration in reward, and their futures positions Testament be ecocnomic provided the index rises. Traders who sell contracts expect the DJIA to fall in monetary worth. When a Business agreement expires, the traders either remuneration or receive the difference in the value of the contract compared to the price of the contract when they opened the position.
Size
Dow futures contracts are available in three sizes. The standard Dow futures contract has a value of 10 times the DJIA.Dow futures contracts trade on the electronic futures exchanges Day and night a day, five-and-a-half days a week. This feature allows traders to react to market and economic events in Asia and Europe while the U.S. stock market is closed. Dow futures trading allows traders a leveraged way to make trades based on expected stock market direction.
Potential
Futures traders can take positions in Dow futures contracts by putting up a margin deposit amount for each contract they trade. The margin requirement is a fraction of the contract value. For instance, with the DJIA at 10,000, the standard Dow futures contract is worth $100,000. A trader can control one of these contracts with a deposit of $13,000. A 100 point move in the DJIA would provide a $1,000 gain or loss per contract.
Significance
The mini-Dow futures contract is worth five times the value of the index, and the Big Dow futures contract is 25 times the DJIA. The way this translates for traders is that each one point move in the DJIA is worth the futures multiplier in dollars. For the three contract sizes, a one point Dow index change is worth $10, $5 or $25 in profit or loss. They also allow portfolio managers to hedge their stock market portfolios when the stock market is closed or open.
