What Are Dow Jones Futures?

Dow Jones futures are contracts that trade on the commodities and futures exchanges based on the value of the Dow Jones Industrial Average -- DJIA. The value of the Dow Jones futures is often studied and discussed before the stock market opens at 9:30 a.m. The futures quote provides an indication of where the stock market will trend when the market opens, up or down. The Dow futures can also be used as a trading vehicle on the value of the Dow Jones.

Identification

Futures contracts are securities that trade on the different commodity and futures exchanges. Futures contracts are for the future delivery of a specific commodity or financial instrument such as treasury bonds. Futures contracts also trade against the major stock market indexes, including the Dow Jones Industrial Average -- DJIA. These are the securities referred to when Dow Jones futures are mentioned.

Time Frame

Futures trading is open 23.5 hours a day, 5.5 days a week. The U.S. futures markets open trading on Sunday afternoon and close on Friday after the stock markets close. These extended hours have the Dow Jones futures contract trading during the remainder of the day when the stock market is closed, through the night and into the early morning.

Effects

The 24-hour trading cycle of the Dow Jones futures allows the value of the futures contract to react to global financial and other news events when the stock market is closed. During the hours when the stock market is closed, the Dow Jones futures are predictive of where the futures traders believe the DJIA will go when the stock market opens. During the stock market trading day, the Dow Jones futures contract will hold the same value as the DJIA.

Considerations

The value of the Dow Jones futures contract provides stock market investors and traders an indication of where the market will go in the early morning hours before the stock market opens. The New York Stock Exchange opens at 9:30 a.m. Eastern Standard Time and the futures value leading up to the opening can be used to predict whether the stock market will open higher or lower. The results of the Asian and European stock markets overnight and in the early morning have the greatest effect on the Dow Jones futures before market open.

Potential

The value of the Dow Jones futures contracts can be traded directly through an account with a commodities and futures broker. Stock index futures trading provides a liquid market for short-term trading on the value of the Dow Jones. Futures traders can make trades for projected moves in either direction of the Dow Jones. The trading requires a margin deposit of about 10 percent of the contract value, providing a leveraged trading vehicle for the Dow Jones.