What is the Dow Futures? How does it work?

As we know that a stock market does contain so many things and future contracts are also a part of it. Stock Market is not only about a single stock, it does also contain index’s, future contracts, Example Dow Jones industrial average, Dow Futures etc. If trader’s has a professional level of experience and knowledge financial future contract’s (Dow Futures) would be a right option to invest where trader’s & Investor’s can take the advantage of high amount of leverage to earn maximum amount of profit from the Dow future’s contracts.

  • What is the Dow Futures?

They are called as the financial futures, Dow Futures are those contracts where two parties do trade based upon hedging and promise each other that both are ready to buy and sell a particular asset on the expiry of contract, at a pre defined price of an base index. In other words Dow futures are those futures in which two parties do contemplation of the market price movement on the bases of Dow Jones Industrial Average Index (DJIA).

  • How Does It work?

The main basic element of the Dow Futures is DJIA (Dow Jones Industrial Average).Because a Dow Futures contract does work according to the price of Dow Jones Industrial Average Index price, and every Dow Future’s contract is based upon 10x high leverage, Forex example 

DJIA 1 Point is up (25000 to 25001) = 10$ which is 10 time more 

So here 1 Point ($1) = $10 

Means to say in a Dow future’s contract one point of DJIA will be = $10 

Furthermore same like other financial market’s Buyers & Seller both are the part of Dow future’s too. 

A buyer do Buy (Long Position) when he has expectation of price rise, A seller do sell (Short Position) when he has expectation of price fall. So in a Long Position if price is going up Buyer will make profit, on the other hand in Short Position if price is going down Seller will make profit. 

  • Fore Example:

Suppose Today on 8th Feb 2019 and Apple Stock share price is $200 Jerret assuming that Apple Stock rate will increase till March 2019 and he is promising that he will buy 10 stock of Apple (value = $2000) in March 2019 on expiry of the contract, here he is not buying shares ok? Because this is a future contract not a cash market where we have to pay $2000 USD direct on spot right now to buy that much quantity of AAPL Stock. Here Jerret is promising that he will buy AAPL shares for $2000 on the expiry of the contract which is March 2019. Now Suppose Apple got more sales this year in Feb 2019 like 5x compare to last year. What will happen then? Stock price will increase right?

Suppose Now the price of per AAPL Stock is $300 and Jerret thinking that he should sell the shares instead of holding them till the expiry sure he can sell all his stocks right now because he already has made a good profit.

Profit Calculation:

$300*10= $3000 So Profit is $3000? No

Because Jerret had done only the promise to buy $2000 value shares so the actual profit will be

$3000- $2000 = $1000  Actual Profit 

so that was an example of an future contract during a long position (buy). I hope you liked the content. On Sell side which is (Short Position) situation will be opposite of buy side.Along with it Dow futures contracts are traded on CBOT, Chicago Board Options Exchange which is one of the largest Options Exchange in USA. 

  • Dow futures contracts get expire on a quarterly bases
  1. March
  2. June
  3. September
  4. December 

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