Dow Jones futures contracts are based on the value of the Dow Jones Industrial Average.
The Dow Jones Industrial Average (DJIA) is the oldest and most widely followed U.S. stock market index. The value of the futures contracts for the DJIA provide market watchers an indication of where the average will go when the stock market is closed. The value of Dow Jones futures are often quoted in the hours before the U.S. stock market opens.
Features
Futures contracts are derivative securities that trade on the commodity and futures exchanges. The value of a futures contract is based on the value of an underlying commodity or financial instrument --- in this case, the Dow Jones Industrial Average. Dow Jones futures allow traders to generate profits or losses based on the future value of the DJIA.
Time Frame
The futures markets are trading 23-1/2 hours a day, five and a half days a week. The stock market is open from 9:30 a.m. until 4:00 p.m. five days a week. The extended trading hours for Dow Jones futures contracts can be used as an indicator for the stock market direction when the stock market is closed. When the stock exchanges are open, the value of the Dow Jones Industrial Average controls the value of Dow Jones industrial futures contracts.
Identification
The commodity and futures markets trade standardized contracts on a wide range of commodities and financial instruments. Futures contracts have a specific value based on the value of the underlying instrument. The standard DJIA futures contract is valued at 10 times the value of the Dow Jones Industrial Average stock index. This contract is also referred to as the $10 Dow futures. The E-Mini Dow Jones contract is worth five times the value of the index, and the Big Dow is 25 times the DJIA index value.
Function
Futures contracts are traded through a licensed commodity and futures brokers. Some stock brokers also offer futures trading, but many brokers specialize only in the futures market. Futures traders must put up a margin deposit for each contract they want to trade. For example, the margin requirement for the $10 DJIA futures was $13,000 when the DJIA index was near 11,000; a single futures contract was worth $110,000.
Potential
Futures contracts on the Dow Jones Industrial Average allow traders to make directional trades on the future movement of the index. A long position in the DJIA futures will profit if the index increases, and a short position will profit if the index declines in value. Futures trading doesn't have different rules or requirements for long and short contract trading. Individuals who want to trade Dow futures must open a commodity trading account with a registered broker.
