Equity index futures are one of the most widely traded futures contracts in the futures market, and the reason is simple — they are cash-settled. In addition to being financially settled, equity index futures offer institutional investors a viable way to hedge their exposure in the stock market.
Dow Jones E-mini futures are very popular among equity index futures traders as it offers investors access to the U.S. stock market without really owning the individual company stocks. They are about the most efficient and cost-effective way to gain market exposure to the most-capitalized U.S. stocks.
|Dow Jones E-Mini Futures Contract Specifications
$5 which is one index point
$5 x Dow Jones Industrial Average
Mar, Jun, Sep, Dec
Sun - Fri 6:00 p.m. - 5:00 p.m. ET with trading halt between 4:15 p.m - 4:30 p.m
Last Trading Day
Third Friday of the contract month
What Is the Dow Jones Index?
Also known as the Dow Jones Industrial Average (DJIA), the Dow Jones Index (or simply the Dow) is a stock market index that tracks the performance of 30 large companies listed on the U.S. stock market — the New York Stock Exchange (NYSE) and the NASDAQ. It is one of the oldest and most-watched indices in the world.
The DJIA is a price-weighted index, meaning that stocks with higher share prices have greater weight in the index. So, higher-priced component stocks have a greater impact on the value of the DJIA. Because the index is price-weighted and includes only 30 stocks, many investors don’t consider it a good representation of the U.S. stock market and prefer the broader S&P 500 Index instead.
First calculated on May 26, 1896, the Dow Jones Index is the second-oldest U.S. market index after the Dow Jones Transportation Average. It was named after the people that created it — Charles Dow and his business partner, Edward Jones. At present, the index is maintained by S&P Dow Jones Indices LLB.
What Are Dow Jones E-Mini Futures?
Futures are derivative contracts that obligate the buyer to purchase, and the seller to sell, the underlying asset, such as a physical commodity or a financial instrument, at a predetermined future date and price. The contracts specify the quality and quantity of the underlying asset and are standardized to facilitate trading on a futures exchange.
For a Dow Jones Index futures, the underlying asset is the equity index, Dow Jones Index. It is a cash-settled contract. The E-mini Dow Jones futures are a type of the Dow Jones Index futures, which trade only on the Globex electronic trading platform.
E-mini futures were introduced in the 1990s to help small traders who found the value of the standard equity index contracts too large for their trading capital. With the E-mini contracts, futures trading has become accessible to more retail traders. Presently, E-mini futures have become more popular with their daily trading volume surpassing those of the standard contracts.
A different way of determining the official closing value of the Dow Jones Index, known as the Basis Trade at Index Close (BTIC), was developed in 2015. The BTIC enables market participants to trade the contracts at a basis to the official closing value of the index ahead of the actual cash market close.
Why Trade Dow Jones E-mini Futures?
There are many reasons traders play the Dow Jones E-mini futures market, and they include the following:
Speculation: Most of the traders in the equity futures market are there for speculation, and the Dow Jones E-mini futures has the type of liquidity and volatility that speculators want.
Hedging: Investors and fund managers use the Dow Jones E-mini futures to hedge their exposure in the U.S. stock market, especially for portfolios that have a high concentration of U.S. blue-chip companies. The closer the portfolio’s composition is to DJIA’s component stocks, the more appropriate it is to use the Dow Jones E-mini futures to hedge the portfolio.
Portfolio diversification: Some fund managers invest in Dow Jones E-mini futures as a way to gain access to an already diversified stock portfolio.
Dow Jones E-Mini Futures Trading Strategies
Being one of the more liquid futures markets, the E-mini Dow Jones future is well suited for trading.
We ourselves have quite a lot of trading strategies for this market that we trade at the moment, and you certainly can build good trading strategies if you just take your time.
The image above shows the equity curve for one of our trading strategies.
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How does the Dow Jones E-mini Future Trade?
The Dow Jones E-mini futures trade on the Chicago Mercantile Exchange (CME) Group’s Globex electronic trading platform and traders from any part of the world can participate in the market. Regular trading is open Sunday to Friday from 6:00 p.m. to 5:00 p.m ET the next day, while BTIC trading is available from 6:00 p.m. to 4:00 p.m. ET the next day. The only exception is on Fridays in which the market closes for the week to open again on Sunday.
A contract unit of Dow Jones E-mini futures (YM) is equivalent to $5 times the current value of the Dow Jones Index. The minimum price fluctuation is 1.00 index point, which is equal to $5.00 per contract. There are contracts listed for four months in the March Quarterly Cycle (March, June, September, and December). The margin requirement is $5,500, which is less than 4 percent of the total worth of the contract.
At expiration, the contract is settled with cash. The last trading day is the third Friday of the contract month, and trading terminates at 9:30 a.m. ET. For the BTIC, trading terminates on the Thursday preceding the third Friday of the contract month at 4:00 p.m. ET.
Dow Jones E-mini Futures Seasonality
Here is a seasonal chart of the market.
The Factors that Affect Dow Jones E-mini futures
There are many factors that can directly or indirectly affect the Dow Jones Index and, thereby, influence the pricing of Dow Jones E-mini futures. Here are the main ones:
Movement of the component stocks: Since the index is price-weighted, the price movement of highly priced stocks tends to have more effects on the index than the lower-priced component stocks.
Trade policies: Changes in trade policies can affect stock prices, which then reflects on the index and the index futures.
Political events: Geopolitical events, such as wars, elections, and referendums, can also affect stock prices and move the Dow Jones Index.
Interest rate changes: Changes in interest rates can have huge effects on stock prices and the value of the DJIA.
Value of the U.S. dollars: A falling USD may drive stock prices up, causing the DJIA to rise, while a rising USD can have the opposite effect on the DJIA.
The Dow Jones E-mini futures offer investors access to the U.S. blue-chip companies, as well as serve as a tool to hedge their exposure in those stocks. It also provides traders with a way to speculate on the direction of the DJIA. The contract can be traded on the CME’s Globex electronic trading platform.
Here is our archive with articles about other tradeable futures markets.
What are Dow Jones E-Mini Futures?
Dow Jones E-Mini Futures are derivative contracts that obligate the buyer to purchase and the seller to sell the Dow Jones Index at a predetermined future date and price. The E-mini version, traded on the Globex electronic platform, is a more accessible option for retail traders, offering liquidity and popularity. It’s cash-settled and introduced in the 1990s to accommodate smaller traders.
What factors affect Dow Jones E-mini futures?
Several factors can influence Dow Jones E-mini futures, including movements of component stocks, changes in trade policies, geopolitical events, interest rate changes, and the value of the U.S. dollar. These factors can impact stock prices, influencing the pricing of Dow Jones E-mini futures.
How is the Dow Jones E-mini Futures settled?
Dow Jones E-mini Futures are cash-settled contracts, meaning at expiration, the contract is settled with cash. The last trading day is the third Friday of the contract month, and trading terminates at 9:30 a.m. ET. This settlement method eliminates the need for physical delivery of the underlying asset.