A stock index simply represents a basket of underlying stocks. Indices can be either price-weighted or capitalization-weighted. In a price-weighted index, such as the Dow Jones Industrials Average, the individual stock prices are simply added up and then divided by a divisor, meaning that stocks with higher prices have a higher weighting in the index value. In a capitalization-weighted index, such as the Standard and Poor’s 500 index, the weighting of each stock corresponds to the size of the company as determined by its capitalization (i.e., the total dollar value of its stock). Stock indices cover a variety of different sectors. For example, the Dow Jones Industrials Average contains 30 blue-chip stocks that represent the industrial sector.
The Dow Jones Industrial Average (DJIA) is often viewed as a strong indicator of the success of the U.S. stock market and the U.S. economy overall. The DJIA represents nine economic sectors including financial services, technology, retail, entertainment and consumer goods. The DJIA is one of the most widely quoted measures of the U.S. stock market due to its extremely high correlation to broader U.S. indexes, such as the S&P 500. Notable stocks include IBM, Johnson & Johnson, Nike, Visa, and Walt Disney.
The E-mini Dow futures contract provides a way to efficiently gain exposure to the key benchmark for the U.S. stock market, using a small-sized electronic contract. There are potentially lower trading costs compared to trading individual stocks or Exchange-Traded Funds (ETFs).
The E-mini Dow futures contract provide a contract that is 1/2 the size of the standard contract. The most common contract symbol is YM.
The futures contract trades solely on the CME Globex platform providing access virtually around the clock with complete price transparency, liquidity and tight bid/ask spreads. The electronic contract trades from 5:00 PM CT to 4:00 PM CT, with a trading halt from 3:15 PM CT to 3:30 PM CT, Monday through Friday.
One E-mini Dow futures contract is $5.00 x the Dow futures price. The previous settlement price (December 11, 2013) for the March 2014 E-mini Dow futures contract was 15780 or $78,900 per contract. The futures contract price quotation is $5.00 per one index point. The next price movement after 15780 downward is 15779, followed by 15778. Therefore, a move, from 15780 to 15680, is $500.
The performance bond or initial margin requirement to initiate one futures contract position is $4,290 (as of November 11, 2015). To control that futures position going forward the maintenance margin becomes $3,900 (as of November 11, 2015).
The Daily Price limits are designed to coordinate with circuit breakers provisions as applied by the New York Stock Exchange (NYSE). 7%, 13%, and 20% price limits are applied to the futures fixing price and are effective from 8:30 AM CT to 3:00 PM CT, Mondays through Fridays. 5% up-and-down limits are effective 5:00 PM CT to 8:30 AM CT, Sundays through Fridays; and 3:00 PM CT to 4:00 PM CT, Mondays through Fridays. Between 3:00 PM CT to 4:00 PM CT, the 5% price limit will not be allowed to breech the 20% daily limit.
The E-mini Dow futures contract month listings are March (H), June (M), September (U), and December (Z).
The E-mini Dow futures contract’s Last Trading Day (LTD) is the 3rd Friday of the contract month, allowed to 8:30 AM CT. The March 2014 E-Mini Dow futures contract LTD is March 15, 2014 for example. The daily settlement procedure is found here: http://www.cmegroup.com/trading/equity-index/files/e-mini-dow-futures-daily-settlement-procedure.pdf.
Be aware of major financial reports if trading the stock index futures as they will potentially affect prices.
Visit www.danielstrading.com for additional contract specifications and market information regarding the Dow futures market.
Sources:
www.cmegroup.com
www.barchart.com
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