Meaning of Dow Futures
The term "Dow futures" refers to futures contracts that trade based on the value of the Dow Jones Industrial Average (DJIA) stock-market index. Futures contracts are derivative securities with a value based on a specific commodity or financial instrument. Stock investors who do not trade futures can also use the information that the values of Dow futures provide.
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Purpose
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Dow futures contracts track the value of the DJIA. Each standard contract is worth $10 times the value of the Dow, although $5 and $25 Dow contracts are also available. Futures traders make directional bets on which way the DJIA will move, and they profit accordingly if they correctly predict whether the Dow goes up or down. Contracts' quotes are in whole points, without the decimal places the DJIA index uses.
Trading Times
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Trading can take place 23 and a half hours a day, five and a half days a week, either through electronic trading or on the commodity exchanges. Electronic trading of the standard Dow futures starts at 5:00 p.m. Central time on Sunday and stops at 4:30 p.m. Central time on Friday.
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After-Hours Change in Value
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The almost 24-hour trading schedule of Dow futures trading allows the futures price to react to financial news when the regular stock market is closed. The value of Dow futures can therefore quickly change, based on the latest financial events. Their after-hours value will also fluctuate based on where the futures traders believe the market will open for the next trading day.
Change in Value During the Trading Day
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When the U.S. stock market is open from 9:30 a.m. to 4:00 p.m. Eastern time, the value of Dow futures contracts will closely follow that of the DJIA index.
Effect on the Market
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In the morning hours before the stock market opens, financial-news networks and websites will report the value of Dow futures contracts and the change since the previous close. Futures traders look at the results of the Asian and European stock markets and try to predict the opening value of the DJIA, bidding the value of the Dow futures up or down accordingly. The level of Dow futures before the stock market opens can provide stock-market investors and traders with an indication of whether the market itself will open up or down.
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