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All you Need to Know About Trading Dow Jones Futures Contracts

All you Need to Know About Trading Dow Jones Futures Contracts

With the rise in popularity of index-based trading, Dow Jones futures have also become very prominent. It’s traded in probably the oldest and the most recognizable benchmark in the world of stock indexes, the Dow Jones Industrial Average (DJIA). 

The index tracks 30 American blue-chip stocks and represents the overall U.S. stock market. While investors can’t directly trade a stock market index, they can leverage Dow Jones futures contracts to enable trades based on speculation of market movements. 

It’s essentially an investment channel that is highly liquid and utilizes significant leverage. As a result, trading in futures is quite popular among day traders and long-term investors. 

What are the key features of this investment vehicle?

As alluded to above, Dow Jones futures offer investors an enormous amount of leverage. This means that investors can receive five-time leveraged exposure to all the stocks in the DJIA in futures contract margin trading with the E-mini DJIA contract for less than $5,000. 

But at the other end of the spectrum, it’s critical to note that leveraging futures can also expose you to significant risk. Dow Jones futures also come with the key benefit of increased trading hours which can’t be matched by the U.S. Stock market. 

For example, Wall Street usually trades for seven and a half hours, five days a week. But financial futures can trade for almost 24 hours a day (23.5 to be exact), six days a week, from Sunday through Friday. 

What are the contract specifications?

There are basically three types of Dow Jones futures contract sizes. For example, the standard Dow futures represents $10 the DJIA market value while the mini-Dow or the E-mini contract represents $5 times the DJIA. 

What’s known as the Big Dow contract represents $25 times the index value. All three contracts are traded on a quarterly basis with almost all trades taking place in the nearest expiration month. 

However, it’s quite simple for investors to roll over their positions from one-quarter contract to the next when the current expiration date nears. 

Once investors get familiar with the Dow Jones futures trading platform, they should devise a trading strategy by taking advantage of demo or simulator accounts. This will be important going forward as a robust strategy can be vital when trading highly leveraged investments. 

So as a rule, beginners starting out on their investment journey would be better served to always practice, test, and go with a strategy that has worked consistently before trading live with real money.