As investors gain experience with a variety of securities, you may want to trade indexes with the Dow Jones Industrial Average or S&P 500. To utilize that leverage, trading futures contracts is better than buying securities. However, most people don’t have much exposure with futures, and it can be confusing.
What Are Futures?
A futures contract is a legal agreement between two parties, which can be institutions or individuals. They agree to exchange assets or money based on a predetermined price of an index.
In a sense, two people strike up a deal and say that if the DJIA index gets to or above a particular price by a particular date, one party pays the other whatever difference was between the closing price and the agreed-upon price. The holder gets the right and doesn’t have to deal with obligation.
Where They Trade?
Dow Futures trade using the exchange, which means the exchange is the counter-party. That way, both people involved have to stick to the original contract. If the counter-party goes bankrupt or otherwise cannot fulfill the deal, you’d have no options, and you’d lose the position. When the contract is cleared through the exchange, you eliminate that risk. EuropeFX Review can help with Dow Futures.
When to Trade?
Dow Futures can trade any day on the CBOT, starting at 7:20 a.m. Central Time. It’s a full hour and 10 minutes before the traditional stock market opens, which allows you to get an idea of the market that day. Therefore, if one company reports significant earnings, Dow Futures are likely to skyrocket, and the stock market is likely to rise, as well. However, the opposite of that holds true, too. If a negative event happens before the stock market opens and Dow Futures drop, there’s a likely chance that the stock is going to fall when the opening bell rings.
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