How to trade Dow Jones index futures

Futures contracts such as E-mini Dow enable almost anyone to trade or invest in the Dow Jones Industrial Average (DJIA), which is the most iconic stock index in the world. The Dow Jones Index tracks 30 blue chip US stocks from nine industries, from industrial to healthcare to consumer staples.The Dow Jones Indices are often considered synonymous with the “stock market,” although the S&P 500 index, which consists of 500 companies, represents the US stock market more broadly. Despite this, Dow futures are still a popular tool that can be used to broadly access US stocks or to hedge such positions.

Key points

  • Dow Jones futures contracts allow almost anyone to speculate whether the broader stock market is up or down.
  • Dow futures contracts can be traded with leverage, which means you only need to invest a small portion of the contract value.
  • Compared with individual stocks, the Dow Jones futures market makes it easier to short the broader stock market.

Fundamentals of Futures Trading

A futures contract is a legally binding agreement between the two parties to agree to buy or sell the underlying asset at a predetermined price in the future. The buyer assumes the obligation to purchase, and the seller assumes the obligation to sell. And the value of the underlying asset—in this case, the Dow Jones Index—usually changes during this period, creating opportunities for profit or loss.

Some commodity futures contracts still require actual physical delivery of related products, such as corn bushels, but this is not the case with the Dow Jones Indices and other financial market futures. They are designed to allow traders to easily hedge risks and profit through speculation. They can be settled in cash. .

Trading Dow Jones Indexes with Futures Contracts

In short, the Dow Jones Industrial Average futures contract enables traders and investors to bet on the direction of the index that they believe represents the broader market. This simplicity, high trading volume, and available leverage make Dow futures a popular way to trade the entire U.S. stock market. About 200,000 E-mini Dow contracts change hands every day.

There are now two Dow Jones Index futures contracts to choose from, both of which are traded on the Chicago Board of Trade (CBOT) and Chicago Mercantile Exchange (CME). As mentioned above, the E-mini or mini-Dow contract represents DJIA’s price per jump of $5. Micro E-mini is one-tenth the size of E-mini, and each point represents 50 cents.The margin requirement is only $550. Except for the recent months, Dow futures are listed on a quarterly basis, with expiration dates in March, June, September and December.These contracts are settled in cash, which means that delivery is based on the equivalent value of the index rather than the stocks that make up the index itself.

transaction hour

Unlike the stock market, financial futures are traded six days a week, from Sunday to Friday, almost all day long.

  • During the regular trading hours of the US stock market, the Dow futures contract price is very close to the index value.
  • When the U.S. stock market is closed, these index futures may continue to trade in after-hours trading hours. These prices will continue even when the underlying stocks are closed, and may be affected by economic data releases or monetary policy decisions or geopolitical events in other countries.
  • Dow trading hours include: Monday-Friday: 5:00 pm-4:15 pm the day before; trading suspension 3:15-3:30 pm

Use leverage in trading

One of the most attractive features of futures contracts is leverage. Traders can buy an E-mini Dow Jones index contract at a price of approximately US$5,500-and the futures contract is worth US$5 per point on DJIA.Therefore, if you buy when the index itself is 29,000 and sell when the index reaches 30,000, then you have made $5,000 in the transaction, which is almost doubled.

But please note that leverage is two-way, magnifying losses and gains. A 1,000-point drop in the Dow Jones will almost wipe out your $5,500.

Open a futures trading account

The first step in trading Dow futures is to open a trading account, or, if you already have a stock trading account, please apply to your brokerage company for permission to trade futures. Most major brokerage companies such as E*Trade, TD Ameritrade and Interactive Brokers offer stock index futures. They usually charge commissions when opening and closing positions.

The main considerations when choosing a broker are the ease of use of the trading platform, commission fees, customer service, news and data feeds and other functions, as well as analysis tools such as charts.

Choose a futures trading strategy

After choosing a broker and depositing funds into your trading account, the next step is to download the broker’s trading platform and learn how to use it. Before you are proficient in using your trading software, you don’t want to be discovered by trying to make quick trading decisions in a volatile market.

Test your trading strategy before you start taking risks with your hard-earned money.

After understanding your trading platform, choose a trading strategy and test it with a demo or trading simulator account. Only after you have a strategy for continuous profitability in simulated trading can you start real-time trading with real money. This is even more important when trading with highly leveraged instruments such as futures.

With futures trading, you can buy long or short with the same ease. The futures market is not subject to the same short-selling regulations as the stock market. If you expect the Dow to rise, buy a futures contract; if you expect the index to fall, please sell short. Open a position in the trading month of the futures contract you want to trade-the nearest expiration date will be the one with the largest trading volume.

Futures margin requirements

When you open a position, the broker will reserve the required initial margin amount in your account. To hold a position, you must maintain sufficient funds in your account to cover the maintenance margin. The maintenance margin is lower than the initial margin requirement.

If the value of your account is lower than the maintenance margin level, you will receive a margin call from the broker, asking you to clear the trading position or deposit additional funds to restore the account to the required level.


Simply enter the opposite order to close the open position. For example, if you start a transaction by buying 5 E-mini Dow contracts, you will end the transaction by selling a contract with the same futures contract expiry date. If you open a position by selling five contracts, you need to buy five contracts to complete the transaction.

If you have more than one contract, you can also partially close your position—for example, sell three of the five contracts you originally bought, leaving a position for two contracts.


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