Are you interested in highly trending instruments? Then this articles is definitely for you! It will provide beginner traders with a clearer understanding of what are DJI futures, how to trade DJI index futures, as well as reasons why you should consider trading DJI index futures. Also you will find there a practical example you can use to trade DJI futures, and expert tips for trading with DJI index futures.
What Are DJI Index Futures?
DJI Index Futures (or Dow Jones Index Futures) are a type of futures contract which enable investors to speculate on what the value of certain things will be on the Dow Jones Industrial Average Market Index.
Index futures are a form of agreement between two traders whereby one trader wins, while the other loses. It is similar to a bet in this sense, however, it differs due to the fact that it is a legal agreement, with an obligation for one party to pay the other when the settlement date is reached.
Dow Futures are also a type of trading instrument that investors can hedge with, meaning that they can use it as a form of insurance to minimize the risk of their overall investment portfolio, by grouping it with and/or placing it against other investments they have made.
Index futures in general enable traders to purchase or sell contracts that are based on what they think the value of the financial index they are trading on will be on a specific date in the future. In trading, this is also typically referred to as 'speculating on price movements'.
Reasons To Trade DJI Futures
Here we are going to number three points that prove why the DJI is a great idea for your trading portfolio.
1. Reducing risk
As mentioned previously, futures are great for enabling traders to hedge their investments and manage their investment risk. Being able to minimize your investment risk can potentially enable you to trade with more capital and earn even higher profits, as long as the investments are placed effectively, and always take into account the risks (high market volatility and larger losses).
2. Benefits of trading futures in general
Trading with futures enables investors to take advantage of increased leverage, reduced costs for trading, and more time to trade (i.e. longer hours to speculate on price movements).
3. Trading on indexes vs other trading instruments
Moreover, with index futures such as DJI, investors can potentially minimize their risk even further in comparison with trading on specific commodities, components, businesses etc, since they are speculating on an entire index, which will contain many different businesses, organizations, and more.
For instance, the Dow Jones follows 30 different companies that are publicly-owned (also known as blue chip companies) and are traded on the NYSE (New York Stock Exchange).
Some of the most well known companies included on the Dow Jones index include Coca-Cola, AT&T, ExxonMobil, Wal-Mart, Hewlett-Packard, and Microsoft.
Companies experience highs and lows in their stock prices rapidly in today's world, but it's far less likely for all 30 companies to all experience the same stock price fluctuations, since they are from different industries. Therefore, this is a way that traders can somewhat protect themselves from sudden shifts in market volatility.