The value of the Dow futures is often quoted before the stock market opens as an indicator of how the market will react during the trading day. The underlying value of Dow futures is based on the Dow Jones Industrial Average, an index of 30 major U.S. companies. Trading Dow futures is one way traders attempt to profit from the value changes of the DJIA. Investors who do not participate in the futures markets can use the Dow futures as a forecasting tool.
The Dow Jones futures contract began trading at the Chicago Board of Trade (CBOT) – now the Chicago Mercantile Exchange (CME) in 1997 after much competition between the exchanges for the rights to trade futures and options products owned by Dow Jones & Company. Dow was reluctant to allow its name to be involved in futures trading for 15 years after the first stock index futures contracts began trading. Apart from major systemic factors that impact the economy as a whole, there are very many individual factors that drive the price of Dow Jones futures. For example, when the financial near-meltdown happened in 2008, the Dow was hit heavily by losses in three components in the financial industry: Bank of America, Citigroup and JPMorgan Chase. Citigroup is no longer in the index and was replaced in 2009 by an insurance company.
Major events and breaking news can occur during the one-hour window before the stock market opens, and the news usually gets priced into the futures contracts, fluctuating like a normal index. This allows investors to use the futures prices to get a generalized view of market sentiment and may help to position certain trading strategies before equity markets open.
|Contract Symbol||Contract Unit||Price Quotation|
|GYM||$5 per contract||dollars per contract|
|Trading Exchange||Trading Hours||Tick Value|
|CME GLOBEX||17:00 - 16:15||1 index point = $5|
Contract specifications are for the mini Dow.