If futures are low, then the market is probably low, and if they are high, the market has a better chance of opening high, according to Zacks. To interpret Dow Jones figures for futures, it is important to understand how they affect the stock market.Continue Reading
A future is a contract that is standardized for selling and buying a specified item with a standardized quantity at a given date and a market-determined price, explains Zacks. Investors can conduct future business through commodities such as currencies, oil, corn and many others, but individuals don't have to own a commodity to get into future contracts.
Dow futures depend on the renowned Dow Jones industrial average (DJIA). A total of 30 stocks make up DJIA, and each future contract is 10 times the value of DJIA. For instance, if the trading of DJIA is at 10,000, the value of the future contract is at $100,000. A 1 unit rise in the value of DJIA translates into a $10 rise in the value of the future contract, as Zacks explains.
There are risks involved when trading the Dow futures because the DJIA experiences fluctuations influenced by factors such as geopolitical events. Investors need to understand these risks well before trading in futures, according to Zacks.Learn more about Investing