Dow Futures Pre Market: Negotiation
Dow futures pre market traders often look at what is happening in other markets before agreeing with other investors on where the futures will go.
Meanwhile, index-based exchange-traded funds (ETFs), such as Dow Jones, move the price based on transactions in futures contracts.
For example, Apple shares typically trade at sunrise. Investors who are risk-averse or those who use price trading typically avoid trading dow futures pre market due to lower liquidity and volatility.
This is because many of them buy shares in the market to hold them for a short period of time. However, before special or sudden announcements, they are the first to carry out pre-sale operations before the opening.
Dow Futures Pre Market – What Are Dow Jones Futures?
Dow Jones futures are legally binding contracts between two parties for the price at which they will exchange the (cash) value of the Dow Jones Industrial Average (DJIA) stock index at a later expiration date.
Unlike most futures contracts, Dow futures prices are not based on a physical asset, but rather an index, which is nothing more than a number that represents a group of stocks.
In this case, Dow Jones is a weighted average of the 30 largest US companies. These companies are the largest in the United States by share price per unit rather than market value.
The index covers nine sectors, from industrial to healthcare, and includes globally recognized stocks such as UnitedHealth Group, Goldman Sachs, and Home Depot, as well as other household names such as Apple, Boeing, and McDonald’s.
Dow Futures Pre Market – Trading Hours and Pre-Open
Since futures are traded outside of stock market hours, nearly 24 hours a day, traders and investors can get an idea of the sentiment; therefore, futures prices often differ significantly from the base price.
During normal trading hours, Dow futures prices are often very close to the value of the underlying index.
Price volatility occurs when activity outside of business hours causes changes in the price forecasts of the index.
The pre-negotiation or pre-opening of the stock market refers to the period prior to the listing of the securities. For example, the market opens at 9:00 am and from then on you can buy and sell shares until it closes again at 5:30pm, but there is a period before the open where investors are still worried about how the stock will open the market.
In fact, you can also follow market trends before the market opens, as some investors place buy or sell orders outside of trading hours, which will be executed immediately after the market opens.
The opening auction takes place before the stock market opens, usually half an hour before, beginning at 8:30am and ending at 9:00am with the market opening.
During this period, known as the opening auction, investors can enter, modify, or cancel orders, but those orders will not be executed until the market opens. That is, since we can send a Dow futures pre market order, we have time to cancel or change the order because it will not be executed until 9:00 am.
These auctions are also used to calculate the opening price of the security during the next new trading session. The reason these auctions exist, trivial as it may seem, is to avoid speculation and high volatility when the market opens without a prior opening.
The opening is also characterized by well-known current events. For example, in the case of European markets, the pre-opening is strongly influenced by what happened the day before during the American and Asian sessions.
For example, if the Federal Reserve announces a move that surprises the market at 8:00 pm Madrid time, there will be many buy or sell orders before the Spanish stock market opens.
Fundamental Analysis for Futures Trading
Fundamental analysis is an evaluation of the financial, economic, and geopolitical factors associated with a security to determine where prices could go. Although fundamental analysis is often applied to stocks, it can be applied to Dow futures pre market as well.
Unlike technical analysis, which analyzes historical price action and uses chart-based mathematical methods, fundamental analysis includes micro and macroeconomic variables, industry financial conditions, and other tangible considerations that can affect a security’s price.
Unlike equity instruments that represent the value of individual companies, futures represent the entire market. When applying fundamental analysis to Dow futures pre market, the most important factors are those that can affect supply and demand. Broadly speaking, futures contracts can be divided into four main market categories:
- Financials, including S &P 500 (ES), Nasdaq (NQ), and Dow Jones (YM) index futures.
- Energy, including crude oil (CL) and natural gas (NG) futures.
- Agricultural futures, including wheat (KE), corn (ZC), and live cattle (LE).
- Metals, including gold (GC), silver (SI), and copper (HG) futures.
Macro And Micro Economic Factors
Although the specific justifications for each category vary, macro and micro economic factors, and industry conditions must be evaluated.
- Macroeconomic factors:
The main economic variables that affect the price of Dow futures pre market are called macroeconomic factors. Macroeconomic factors are the highest level of fundamental analysis, meaning they look at the «big picture» of the economy relative to future value.
The main components of the evaluation are:
- Gross Domestic Product (GDP).
For example, when the Federal Reserve raises interest rates, it typically leads to less lending to growing businesses, which ultimately leads to slower economic expansion.
As a result, traders of stock index futures such as the E-mini S&P 500 could interpret a rate hike as a bearish signal. Stock index futures traders tend to pay close attention to movements in interest rates when conducting fundamental analysis.
- Microeconomic factors:
Although the microeconomic factors will differ for each product or industry studied, they apply to all factors that can affect supply and demand. Some common microeconomic factors are:
- Seasonal cycle.
- Interaction with relevant markets.
- Environmental factor.
- Activity and consumer sentiment.
- Technological advances.
- Substitute products or complementary products.
What To Consider Before Buying Dow Futures Pre Market?
As with all markets, there are risks associated with the Dow futures pre market. One principle to consider is that the stock’s movement is not exactly greater than it would have been at the open of the market.
Because when the regular trading session starts, the stock price will start moving up or down. In addition to the flow of investors present, a fundamental analysis of the impact of the Fed’s sudden decision on business and the national economy is also important.
Some of the risks a pre-sell trader can take is buying a stock that has fallen in price drastically, only to find that there is no one to sell it to. Also, if a trader enters the market with a large amount of funds, they can change the opening price.
The higher the risk, the higher the profit potential, as traders can buy cheap and see exponential growth throughout the day.
How To Track the Market Before It Opens?
Investors may follow market trends before the market opens for a variety of reasons. This is because many traders place buy or sell orders before the market opens so they can be executed once the stock market starts moving.
The pre-open is closely related to the market outlook, that is, the time after the market closes. Therefore, if an investor places an order to buy a company’s shares at the market’s close trading price, the actual purchase will be made when the market opens the next day.
However, before the stock market opens, it will already be possible to understand the movement, volume, and price of the index, taking into account all orders placed outside business hours.
Typically, retail investors trade Dow futures pre market because it is not a time for intense trading; that is, there aren’t many buyers and sellers. Additionally, there is sometimes a surge in the number of investors prior to an IPO when a company announces changes to its board of directors, balance sheet, or other announcements that could affect its share price. Although trading volume has increased significantly, it is different from normal business hours.
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