Investment is the key to the growth of the economy. Instead of putting aside your funds into saving accounts, investing has turned out one of the best ways of making profits with the same amount of saved money if utilized. The income generated from investment can provide financial assistance. The dividend from shares, bonds, or stocks is the income earned after investing. You may want to consider understanding the meaning of futures and dow futures, as they impact the stock market. It is essential and beneficial for the investors and the companies, as lower stock prices will result in less capital for businesses, funds, and other economic activities. A crash in stocks can bring down a whole economy.
What is a stock investment?
Individuals who put their money into buying shares, bonds, stock or real estate property and so on (also called investors), who represent claims of ownership over the business or property, the place where these transactions are engaged is called a stock market. Trading is extremely profitable if the investors are up to date with the direction of movement of their asset’s price, but one might face losses. Hedgers use futures to gain equilibrium or compensate for losses.
What are future stocks?
Before investing your funds, you should be abreast with the term futures and dow futures. Let’s get to know what does futures stock means? It is a financial contract where two parties (individuals or institutions) buy or sell specific quantities of a commodity or financial instrument after agreeing at a price in the present with delivery set at a date in the future. Here, the current market prices do not matter at the time of transaction. Futures trading is usual in commodities such as agricultural products, crude oil, and currencies, so on.
To understand how do futures work? Consider an individual bought a contract from a farmer that he purchases a specified quantity of the harvested product at a predetermined rate, say $900. Post the contract expires, an individual is obligated to buy the specific commodity from the farmer at the rates decided, even if the market price tends to fall or rise. A futures contract identifies by the expiring date, such as April crude oil futures contract will expire in April.
There are various types of futures contracts, commodity futures like corn, wheat, crude oil, and natural gas; Stock index futures including the S&P 500 index; Currency futures such as the euro and the pound sterling; Exquisite metal futures as gold and silver; U.S. Treasury futures aimed at bonds and other financial products.
Futures and futures options are not the same concepts. Options are derivative values of the future market; it has a different marketplace and exchange.
Stock Futures Pricing
A future contract pricing is the sum of the current market price and the cost of carrying. It depends on the demand and supply of the commodity.
Cost of carrying is the carrying value of an investment. It may include interest costs or opportunity costs.
Dow Jones Futures
What are Dow Futures? These are financial futures contracts that follow the Dow Jones Industrial Average (DJIA) index. Here, you can trade in commodities futures contracts instead of buying securities.
DJIA- Dow Jones Industrial Average, also termed as the Dow30. It is an amalgamation of 30 well-known, publicly-owned blue-chip companies. These stock trade on the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotation (NASDAQ). The Dow Jones is a highly significant factor in determining the market rates in stock investments. The value of one Dow futures is equivalent to ten times that of DJIA. Let’s consider the DJIA is trading in a $10,000, commodity then the value of the Dow future contract will be $100,000. The DJIA value increases by several points, the rate of Dow futures will be – DJIA point multiplied by 10. Futures buyer profits if the DJIA rises, and vice-versa.
Investors or Fund managers often trade in futures because one doesn’t have to own them, unlike traditional stocks. Futures contracts are leveraged investments. When the direction of movement in the price of the commodity is profitable, then it’s beneficial. On the other hand, losses faced by investors are way below the initial margin. They make futures trading extremely risky.
Want to start trading in stock futures?
One must first register themselves to a registered broker and fill up all the Know Your Client (KYC) rules. Then the broker will provide an agreement form that will disclose all the risks that can occur. The client must sign that form. After completing the formalities of registration as a client, he/she needs to deposit an initial margin for investment.
When are dow futures traded?
A futures exchange occurs at the Chicago Board of Trade (now a part of the Chicago Mercantile Exchange Group). From five pm in the day before, starting Sunday through Thursday through 4:15 pm the next afternoon.
Opportunities offered by Stock Futures
- Investors can use to gamble and take a long-term look at the course in the price of an underlying asset.
- High leverages allow the investor to occupy large positions with less capital.
- Futures contracts may only need to credit a portion of the contract amount with the registered broker.
Futures contracts are beneficial and efficient for hedging or managing different types of risks. It helps in making maximum profits with less initial deposits. The investor doesn’t require to own the commodity, but they are obligated to buy or sell later on a date in the future at a price fixed while getting the contract.
With dow future investors can buy contracts from well-established companies, considering the blue-chip mark, it is convenient to trade with them that there is a greater possibility of earning profits than having a loss. Hedging allows investors to avoid risks. If an investor can analyze the market rates and is well up to date with the latest business news, then trading in stock futures can turn out profitable.