Note that the CME Group, which owns the electronic futures exchange, has its headquarters in Chicago and often posts market times using the Central time zone. Besides the round-the-clock trading on the electronic futures exchange, this futures contract trades in the pits of the Chicago Board of Trade exchange during business hours. During the hours the stock exchanges are open, the prices of the Dow futures contracts closely match the value of the stock index. The Asian stock markets are open during the night and the European markets open several hours before the U.
The value of the Dow futures during these periods can be used as an indicator of where the DJIA will open and move in the next market session. If you want to trade the Dow futures on Sunday night before the stock markets open for the week, you need an account with a commodity futures broker. You must put up an exchange-designated margin deposit for each contract you trade. You can trade futures in either direction — opening with a buy order if you think the Dow will go up or selling contracts to profit from a declining stock index.
Tim Plaehn has been writing financial, investment and trading articles and blogs since His work has appeared online at Seeking Alpha, Marketwatch. Plaehn has a bachelor's degree in mathematics from the U. As soon as the index futures' price premium, or discount to fair value, covers their transaction costs clearing, settlement, commissions, and expected market impact plus a small profit margin, the computers jump in, either selling index futures and buying the underlying stocks if futures trade at a premium , or the reverse if futures trade at a discount.
Index arbitrage keeps the index futures price close to fair value, but only when both index futures and the underlying stocks are trading at the same time. While the U. Liquidity in index futures drops outside stock exchange trading hours because the index arbitrage players can no longer ply their trade.
If the futures price becomes irregular, they cannot hedge an index futures purchase or sale through an offsetting sale or purchase of the underlying stocks.
But other market participants are still active. Index futures trade on margin , which is a deposit held with the broker before a futures position can be opened. Suppose good news comes out abroad overnight, such as a central bank lowers interest rates or a country reports stronger-than-expected growth in GDP. The local equity markets will probably rise, and investors may anticipate a stronger U. If they buy index futures, the price will go up. And with index arbitrageurs on the sidelines until the U.
As soon as the New York Stock Exchange opens, though, the index arbitrageurs will execute whatever trades are needed to bring the index futures price back inline—in this example, by buying the component stocks and selling index futures. Investors cannot just check whether the futures price is above or below its closing value on the previous day, though. The dividend adjustments to index futures' fair value change overnight they are constant during each day , and the indicated market direction depends on the price of index futures relative to fair value regardless of the preceding close.
Ex-dividend dates are not evenly spread over the calendar, either; they tend to cluster around certain dates. On a day when several big index constituents go ex-dividend, index futures may trade above the prior close but still imply a lower opening. Index futures prices are often an excellent indicator of opening market direction, but the signal works for only a brief period. Trading is typically volatile at the opening bell on Wall Street, which accounts for a disproportionate amount of total trading volume.
If an institutional investor weighs in with a large buy or sell program in multiple stocks, the market impact can overwhelm whatever price movement the index futures indicate. Institutional traders do watch futures prices, of course, but the bigger the orders they have to execute, the less important the index futures' direction signal becomes. Late openings can also disrupt index arbitrage activity. Although the bulk of trading on the NYSE begins at a.
ET, not every stock starts to trade at the same time. For some stocks, the opening price is set through an auction procedure, and if the bids and offers do not overlap, the stock remains closed until matching orders come in.
The longer index arbitrageurs stay on the sidelines, the greater the chances that other market activity will negate the index futures direction signal. Buyers may want to hold off when index futures predict a lower opening, too.
Nothing is guaranteed, however. Index futures do predict the opening market direction most of the time, but even the best soothsayers are sometimes wrong.
Career Advice. Eastern time on Sunday and closes at p. Energy futures stop trading from until 6 p. Ethanol futures are considered energy futures, but the contracts trade on a schedule similar to agricultural products.
Agriculture futures trade on a wide range of commodities, from cheese, butter and milk to feeder cattle and pork bellies to grains like corn, wheat and soybeans. General trading hours are 6 p. Eastern time on Sunday until 4 p. Some of the agricultural commodities such as feeder cattle and pork bellies start early trading at p. Many grains trade only from until in the morning Eastern time. Personal Finance Investing.
When Are Futures Markets Open? By Tim Plaehn. A trader on the floor of the New York Stock Exchange.
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