Dow Futures Explained (Part II)

By Ahmad Hassam

As a percentage of the total number of futures contracts traded, stock-index futures are by far the largest category of futures contracts traded. That dominance clearly speaks of the major role that stock-index futures play in risk management for the entire stock market. Stock index futures like the Dow Futures are traded for speculation as well as hedging purposes.

There are many advantages of trading stock index futures like the Dow Futures or the S&P 500 Futures (SP) or the NASDAQ-100 Futures (ND). Stock index futures like the Dow futures or the much broader S&P 500 futures are a better option than trading individual stocks. Some of these advantages are gains in the futures markets are taxed at a lower rate than the stock market capital gains.

Many futures brokerages offer lower commission rates as compared to stocks. If something happens on the stock market overnight when it is closed and you want to hedge your risk, you can trade Dow Futures on Globex. Globex is a 24 hour electronic trading system for a wide variety of futures contract.

You can use many trading strategies that combine futures with options to profit from the stock index movements. In case of trading index futures, you are betting on the direction of the Dow Futures contract value, in this case DJIA and not on the individual stocks that make up the index when you trade Dow Futures or for that matter any other stock index futures.

In a sense by focusing on the value and the general trend of the stocks as a group, you are blocking out a good deal of the noise that is often associated with the daily gyrations in the prices of the individual stocks.

Stock index futures like the Dow Futures are guaranteed to move in response to the economic indicators. You can simply speculate with the futures contract like the Dow Futures just by using technical and fundamental analysis. You can setup positions with both futures and options as you wait for the news to hit the wire.

Any information that moves the stock indexes can be used to make profit by investing in stock index futures. Stock indexes move when economic news of fundamental nature is released. For the past many years, the monthly NFP employment report which is issued the first Friday of every month at 8:30 AM EST has been an excellent mover for stock index futures like the Dow Futures.

You don't need to trade every major index contract in the world to be successful; you just need to find one or two with which you're comfortable -the ones that enable you to implement your strategies.

The best way to trade futures contracts is to become a specialist in one type of the contract like the Dow Futures or the S&P 500 Futures or NASDAQ-100 Futures. The more you know about a particular type of a contract, the better off you are.

Figure out how many days the Dow Futures contract tends to spend rising or falling along a Bollinger Band. You can get an idea when the Dow Futures contract is likely to turn around. This way you can become a Dow Futures swing trader. Every time profiting from a turn in the DJIA! So by becoming a specialist in trading Dow Futures you can make a lot of profit daily from the daily movements in DJIA. - 23226

About the Author:

Mr. Ahmad Hassam is a Harvard University Graduate. He is interested in day trading stocks and currencies. Trade Dow Futures. Learn Swing Trading!