Understanding Dow Futures – Part 4

Many investors have started loving day trading. Most of them are day trading stocks or currencies. Day trading is a serious business. You cannot take it as a hobby. A day trader opens a trade and then closes it before the end of the day seldom taking it overnight to the next day. The purpose of each trade is to make a profit from the underlying short term volatility in the market.

A stocks day trader need to sit in front of the computer for long hours first selecting the right stocks for day trading and then planning each trade. This requires a lot of research. With the present stock market, it is becoming day by day difficult to find hot stocks. So instead of looking for hot stocks why not profit from the stock market direction itself.

You see, there are many stock indexes that are used to show the combined performance of the stocks included in them. The most famous are the S&P 500, DOW, RUSSEL and the NASDAQ. Let’s talk about Dow 30 Index. It is the value weighted index of 30 stocks that are traded on the US Stock Markets. These 30 stocks are selected so that there is a broad representation of the different sectors in the economy.

Dow 30 Index has in fact become the benchmark index of the US economy. When it is going up, US economy is supposed to be buoyant and when it is going down, US economy is considered to be not doing good. So instead of researching the different sectors of the economy and then selecting those stocks that are fit for day trading that can be a time consuming process, it is a much better option to trade one of these stock indexes.

CBOT and CME allow futures trading on these stock indexes. You can trade S&P Futures, DOW Futures, NASDAQ Futures and a host of other futures contracts on the different stock indexes. Dow Futures and S&P futures are the most popular among the day trader. Keeping in view their popularity, mini versions of these stock index futures also known as Emini have also been introduced that have a much lower margin requirements as compared to the standard contracts.

Specializing in trading the Emini Dow futures is not difficult. It is much easier than selecting individual stocks for day trading. In the beginning you can paper trade. Many traders trade Emini Dow Futures and make a successful living. You too can day trade Emini Dow Futures and make a successfully living trading these contracts!

Next : Understanding Dow Futures – Part 5

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