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Sunday, October 24, 2021

The Past, Present, and Future of Dow Jones Futures

The Dow Jones Industrial Average (DJIA) is America’s oldest and most-watched index. Founded by journalists Charles Dow, Charles Bergstresser, and Edward Jones, the future Dow Jones index was part of their research. The research helped them to better understand market movements and analysis. The DJIA tracks the American industrial economy and comprises 30 blue-chip stocks. This means that the companies on the DJIA roster are considered reliable investments in the market.

How do futures work?

current dow futures

A future, in simple words, is a contract, which legally binds two parties under an agreement. The two sides can be individuals or institutions. With this agreement, the two parties agree to exchange money or assets based on the predicted prices of an underlying index.
Dow Jones Futures are commodity trades, with agreed-upon prices and dates for delivery in the future. They allow investors to predict or speculate on the future value of stocks. This prediction occurs before the beginning of a trading day on the Chicago Board of Trade (CBOT) at 7:20 am. 

The definition of Dow Jones Future 

In the 500 indexes(S&P 500) of “Dow Jones Industrial Average and the Standard & Poor”, an investor will see commodities being traded. They can transact futures contracts on the said commodities’ index. Investors can do so without buying into securities. 

As the buyer, the position you take on a trade is the purchase price of the asset you have agreed upon with the seller. Dow Jones futures contracts trade on an exchange; this means that the buyer deals with the exchange when creating their position (price and contract) on the commodity. 

Dow Jones futures can be easily explained by the farmer and grocer example. A farmer is set to harvest and pick their apple orchards soon. The local grocer knows this and offers to buy 12 carts of freshly picked apples in late September for $1000.

Dow futures definitionDow futures definition– The contract cannot be finalized unless the farmer gives his agreement. When it’s time for harvest, no matter the current price of apples in September, the price set is what the grocer pays and what the farmer accepts. 

Clearing all the futures contracts through the exchange eliminates numerous risks, like one party not sticking to their terms of the Dow Jones futures contract. The exchange keeps trading fair and simple.

What are Futures Stocks exactly? 

Dow futures definition– Futures are contracts derived financially that make it an obligation for the parties involved to make transactions on an asset at a price and date for the future that has already been determined. The buyer or seller has to purchase or sell the underlying primary asset at the set price, regardless of the present market price of the asset at the expiration date. 

The distinction between stock market futures for tomorrow and stock options is necessary. In stock options, the option buyer possesses the right but is under no obligation to buy or sell the underlying share. In the case of future stocks, both the buyer and seller are under obligation to buy/sell the underlying share.current dow futures

Additionally, the price of current dow futures depends mainly on the prices of the underlying stock. In stock options, the price is affected by both, the volatility of the underlying stock and the price of the underlying stock.

The assets may include physical commodities or other financial instruments, and current Dow future contracts detail the quantities of the underlying asset. These assets are standardized to facilitate trading on a futures exchange. Dow Jones futures can be used for hedging or trade speculations.  

How Do Futures Work

What are futures stocks?

The futures market uses high leverage. This means the trader can put up less than 100% of the contract’s value when they enter into a trading exchange. Rather, the broker only requires a certain margin amount for the initial term. This margin amount is only a fraction of the total value amount of the contract. It changes in accordance with the contract’s size, the broker’s policies, and conditions, and the reliability or creditworthiness of the investor. 

How do futures work seamlessly?

stock market futures for tomorrowFor futures to work seamlessly, these contracts require regulation. The futures market is regulated by the Commodities Futures Trading Commission (CFTC), a federal agency created by Congress in 1974 to warrant the integrity of futures market pricing. This includes preventing exploitative trading practices, fraud, and regulating brokerage firms involved in futures trading. 

A broker is required when investing in Dow Jones futures or any other futures contract. Access to exchanges and markets where investments can take place is provided by stockbrokers. 

With a DowJones futures contract, a trader can speculate on the direction in which a commodity’s price will fluctuate. If the object’s price rises and regular trading occurs above the price originally decided at the time of expiration, the trader makes a profit. If you are a speculator, you can also sell your speculative position. You need to correctly predict that the price of the said underlying asset is bound to decline. 

Dow Jones futures can also be used to hedge the price movement of the underlying asset. Here hedging implies assuming an investment position intended to offset potential losses or gains that may be sustained by an investment. The objective is to prevent the occurrence of loss from potentially unfavorable price change rather than to speculate.   

There are multiple types of DowJones futures contracts available for trading, they include:

DowJones futures

Stock exchange futures, such as the S&P 500 Index

-Commodity futures, such as wheat, corn, crude oil, natural gas

-U.S. Treasury futures for bonds and other products/goods

-Precious metal futures for silver and gold

-Currency futures including those for the British pound and the euro

Current Dow Futures

Traded on the Globex electronic trade and exchange forum of Chicago Mercantile Exchange, Dow Jones Futures is a stock market index futures contract. It is based on the 30 stock index of Dow. It is an average index of 30 significant stocks transacted on the NASDAQ and New York Stock Exchange (NYSE), weighed with the price. The E-mini Dow, DJIA, and Big Dow DJIA are the three types of Dow Futures, with the E-mini being the most-favored among buyers. 

Dow FuturesDue to current Dow futures contracts such as the E-mini Dow, trading or investing in the Dow Jones Industrial Average (DJIA) is possible for just about anyone. The S&P 500 Index is comprised of 500 companies and represents the U.S. equities market more broadly. But the DJIA is often used interchangeably with ‘the stock market’. 

Just about anyone can speculate on whether the stock market will rise or fall, thanks to Dow Jones futures contracts. Even more, these Dow Jones Futures contracts can be traded on leverage. This allows traders to only put up a fraction of the value of the contract. Dow futures markets also make short-selling the broader stock market rather than just individual stocks, much simpler and easier.

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Daniyel Carlson
Daniyel Carlson is a Young Researcher in the field of Data Science & Analytics having research experience of more than 8 years. He has a Masters in Computer Engineering and currently serves as an Editorial Assistant in IGI Global, United States of America. Daniyel also holds honorary positions in the Associate Member of Institute of Research Engineers and Doctors, International Association of Computer Science and Information Technology, International Association of Engineers, Society of Digital Information and Wireless Communications.

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