How to Trade Dow Jones Index Futures

Contracts can be traded on the long or short side without restrictions or uptick rules. There are many different futures contracts, including those that deal with equities, commodities, currencies, and indexes. In this article, we explain the basics of index futures contracts and what they represent.

The Dow Jones futures contract, for example, tracks the spot price of the DJIA. The two parties in a futures contract are basically betting on where the DJIA will trade on a specified day in the future. This is known as the “final settlement date.” As such, if you are looking to speculate on the DJIA, then trading Dow Jones futures is a good place to start. Futures trading allows investors to speculate on the direction of the DJIA index with leverage, amplifying potential returns (and losses). By depositing an initial margin, traders control a larger position in the market, enhancing profit potential if their market forecast proves correct. However, leverage also increases the risk of substantial losses if the market moves against the trader’s position.

Contact the product issuer directly for a copy of the PDS, TMD and other documentation. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved or otherwise endorsed by our partners. There are four main futures contracts for the Dow Jones Index listed on the Chicago Mercantile Exchange (CME). All of them include different multipliers, which will impact the potential gains or losses after each trade.

E-mini futures contracts trade from Sunday evening through Friday afternoon in the United States. The S&P 500, Dow, and Nasdaq 100 futures contracts trade on the CME Globex system and are called E-mini contracts. Contracts are updated four times per year, with expiration taking place during the third month of each quarter.

Buying and Selling

• If Dow Futures are currently trading at 6,000, for example, a single futures contract would then have a market value of $60,000.
• For example, if the DJIA closes at 16,000 at the end of September, the holder with a September futures contract one year earlier at 15,760 reaps a profit.
• The E-mini, or mini-Dow, contract, as noted above, represents $5 per tick on the DJIA.

One of the primary uses of Dow Jones Futures is hedging against adverse price movements in the stock market. Investors and institutions can use futures contracts to offset potential losses in their equity portfolios, thereby protecting capital during periods of market volatility or economic uncertainty. Hedging strategies involving futures help mitigate risk and preserve investment capital over the long term. Futures contracts have expiration dates on the third Friday in March, June, September and December. On the date of expiration, the transaction settles with either a profit or loss for the trader.

Mechanics of Dow Jones Futures Trading

Other futures contracts may be settled with physical delivery, exness broker reviews such as agricultural goods, oil, gold, and other commodities. For investors with less capital to risk, the exchanges offer an E-mini Dow futures contract, which carries half the value of the standard contract. The E-mini moves $5 for every 1-point move in the Dow, and requires less cash up front to trade. For the large investors and institutional traders, the Big Dow futures trade at a multiple of $25 for every point in the Dow Jones index. Besides earnings, the nearly 24 hour futures markets mean that the Dow Jones futures is also susceptible to foreign and even domestic political and economic factors.

The E-mini, or mini-Dow, contract, as noted above, represents $5 per tick on the DJIA. The Micro E-mini is one-tenth the size of the E-mini, and represents 50 cents per point with a margin requirement of about $800, as of September 2023. Futures contracts such as the E-mini Dow enable just about anyone to trade or invest in the Dow Jones Industrial Average (DJIA), the most iconic stock index in the world. The Dow tracks 30 blue-chip U.S. stocks from nine sectors, ranging from industrials to healthcare to consumer staples. A recession is a downward trend in the business cycle characterized by a decline in production, sales and employment.

Contract Specifications

Investors also use index futures to hedge their equity positions against potential losses. Futures traders will also notice that volume is significantly increased once the cash markets open. The volume in the futures markets (including Dow futures) significantly increases. This is one of the reasons why that you will find quite a few technical futures trading strategies that specifically focus during the first hour of trading of the cash markets. The increase in volume often leads to gaps in the futures markets prices as well. Among the three types of Dow futures, stock market seasonal cycles the e-mini futures attract the most of the trading activity.

That means that a single point move up or down in the Dow Jones Industrial Average translates into a $10 change in the value of the futures contract. Futures traders buy and sell on margin, meaning only a small percentage of the contract value must be deposited into their accounts to trade. Index futures trading can be riskier than stock trading, especially when leverage is involved, which can amplify both gains and losses.

Contract comparisons for Dow and S&P500 futures

Once your account is open, choose the index you want to trade and decide whether to go long (you believe the price will increase) or short (you think the price will decrease). An index futures contract states the holder agrees to purchase an index at a particular price on a specified date. Index futures typically settle quarterly in March, June, September, and December. The fact that the markets are open nearly round the clock also makes the Dow futures are one of the go-to markets for international traders and investors. As a result, a trader who believed the market were going to rally could simply acquire Dow Futures with a smaller amount of money and make a huge profit as a result of the leverage factor. Options are derivatives of the futures market, which have a market and exchange of their own.

A depression is a widespread, extreme recession that lasts longer and causes generational damage to the economy. The last one in the U.S., the Great Depression of the 1930s, saw the stock market crash, banks failing, and thousands of Americans out of work for over a decade. A country’s GDP is the total market value of all the goods and services produced and rendered in a specific time period, and is often an indicator of the country’s economic performance. You can see that the spread is 5 points for the Dow futures and 0.25 points for the S&P500 futures. This translates to $25 in spread that you need to pay when trading the Dow futures, while for the S&P500; the spread is only $12.50.

J.B. Maverick is an active trader, commodity futures broker, and stock market analyst 17+ years of experience, in addition to 10+ years of experience as a finance writer and book editor. Copper futures are part of the metals futures asset group, which is made up of copper, palladium, silver, gold and platinum. Technically referred to as High Grade Copper, the copper futures contracts… It might seem that the S&P500 futures are less expensive contracts to trade compared to the Dow. Traders and fund managers use major stock indices to get an overview of how markets are performing. A stock index allows investors to gauge the movement in the value of the market, while also providing an average measure of the individual company stock prices that make up the index.

Investors who take long positions speculate that the index’s price will increase, while those who take short positions bet that the price will drop. Various factors can move markets, which means they can go in any direction, though some directions are more likely than others. Only enter into futures once you’ve gained ample experience in the Hangsang stock market market, and never invest more than you can afford to lose. By their nature, stock index futures work differently from commodity futures.

Can Australians invest in the Dow Jones?

• Large movements up or down by foreign stock exchanges also play a significant role in determining overnight futures prices.
• He was also a firm believer in using the price movements of different stocks to predict market movements.
• An unofficial definition of a recession many experts use as a rule of thumb is when the gross national product (GDP) drops two financial quarters in a row.
• Dow was known for being able to explain complicated financial news to the public.
• Prices are based on perceptions about overnight events and economic data and movements in related financial markets.

If the trader’s position is losing value, the broker handling the trade may require additional cash to satisfy margin requirements. Put simply, DJIA futures contracts enable traders and investors to bet on the direction in which they believe the index, representing the broader market, will move. That simplicity, the high trading volumes, and the leverage available have made Dow futures a popular way to trade the overall U.S. stock market.

At the end of day it is all about how comfortable a futures trader is that matters. Therefore, take time to test out both the futures contracts to see whether the Dow futures or the S&P500 futures are more suited to your trading profile. The bottom line being that it is basically up to the trade on which of these two contracts are more preferable to trade.