Some Dow Questions

pedro01 · Aug 20, 2008

I have been studying various futures for the past few months but there's still a few 'obvious' things I still don't get.

First of all the pricing....

When I buy a future in corn, I know what I'm buying & I know WHY that market exists. When I buy the mini DOW, it seems there's never any theoretical 'conversion' to anything at expiry time. With corn, in theory when it expires I have brought the corn but in the mini Dow that's not the case, right ? Which leads me to ask about the pricing. The price of the mini Dow is roughly in line with the DOW itself - why is that ? The price of something is tied to supply & demand, in this case the supply & demand of the mini Dow (not the Dow itself) as that is what is being brought & sold. What stops the mini Dow price from completely running away from the underlying Dow price ? Especially considering it's not a future where there's a theoretical buy at the end of the contract (meaning there's no future commodity being brought to keep prices rational)

Second of all - the symbols.

I'm using tradestation. On there for the DOW I have...
YM
YMU08
YMU08.D

YMU08 is quite clear.
YMU08.D seems to be a daily version of YMU08 - is this just the EXACT same instrument but just a version where you only see prices in market hours ? If so - is that just so people can see gaps etc ?

YM - This one is confusing, I can see charts, prices ticking along etc. yet I can't buy/sell this symbol. Once again, what is this symbol for ? Is is just representing YMU08 for now but will represent YMZ08 when YMU08 expires ?

Are these symbols just specific to my trading platform or do you all see them too ?

Cheers

Pete

pedro01 · Aug 21, 2008

pedro01 said:
I have been studying various futures for the past few months but there's still a few 'obvious' things I still don't get.

First of all the pricing....

When I buy a future in corn, I know what I'm buying & I know WHY that market exists. When I buy the mini DOW, it seems there's never any theoretical 'conversion' to anything at expiry time. With corn, in theory when it expires I have brought the corn but in the mini Dow that's not the case, right ? Which leads me to ask about the pricing. The price of the mini Dow is roughly in line with the DOW itself - why is that ? The price of something is tied to supply & demand, in this case the supply & demand of the mini Dow (not the Dow itself) as that is what is being brought & sold. What stops the mini Dow price from completely running away from the underlying Dow price ? Especially considering it's not a future where there's a theoretical buy at the end of the contract (meaning there's no future commodity being brought to keep prices rational)

Second of all - the symbols.

I'm using tradestation. On there for the DOW I have...
YM
YMU08
YMU08.D

YMU08 is quite clear.
YMU08.D seems to be a daily version of YMU08 - is this just the EXACT same instrument but just a version where you only see prices in market hours ? If so - is that just so people can see gaps etc ?

YM - This one is confusing, I can see charts, prices ticking along etc. yet I can't buy/sell this symbol. Once again, what is this symbol for ? Is is just representing YMU08 for now but will represent YMZ08 when YMU08 expires ?

Are these symbols just specific to my trading platform or do you all see them too ?

Cheers

Pete

no one ???

Rhody Trader · Aug 22, 2008

pedro01 said:
The price of the mini Dow is roughly in line with the DOW itself - why is that ? The price of something is tied to supply & demand, in this case the supply & demand of the mini Dow (not the Dow itself) as that is what is being brought & sold. What stops the mini Dow price from completely running away from the underlying Dow price ? Especially considering it's not a future where there's a theoretical buy at the end of the contract (meaning there's no future commodity being brought to keep prices rational)

This question seems to imply a lack of understanding about the nature of the futures market. The futures price must converge with the price of the underlying "cash" market at expiration of the contract. Remember that futures are derivative instruments, meaning their value is derived from some other thing. If the futures and cash get out of line, the arbitrageurs come in and set things right. It's not just a supply/demand of the futures which drives prices of the futures because the futures and cash are inherently linked.

[/QUOTE]Second of all - the symbols....[/QUOTE]

YM is the base symbol. The rest of it is the specific contract (and trading session) in question.

jm99 · Aug 22, 2008

go to the tradestation website, support, online seminars, then view the "Understanding TradeStation's Futures Symbols" seminar

pedro01 · Aug 22, 2008

Rhody Trader said:
This question seems to imply a lack of understanding about the nature of the futures market. The futures price must converge with the price of the underlying "cash" market at expiration of the contract. Remember that futures are derivative instruments, meaning their value is derived from some other thing. If the futures and cash get out of line, the arbitrageurs come in and set things right. It's not just a supply/demand of the futures which drives prices of the futures because the futures and cash are inherently linked.

Second of all - the symbols....[/QUOTE]

YM is the base symbol. The rest of it is the specific contract (and trading session) in question.[/QUOTE]

Thanks Rhody.

What exactly happens when a futures contract expires whilst you are still holding it ?

With commodoties futures, you theoretically become the owner of that commodity at expiry
.
With DOW futures, the 'commodity' is an Index - but you can't take delivery of that - unless it's an ETF.

I understand that it's a derivative but if it's not hard-linked to some underlying commodity at expiry (like an option is), then surely the future becomes the commodity itself and then has it's own price.

pedro01 · Aug 22, 2008

jm99 said:
go to the tradestation website, support, online seminars, then view the "Understanding TradeStation's Futures Symbols" seminar

Will do

thanks for taking the time

Some Dow Questions

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