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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: I’d like to understand if and how the big hedge funds and large investors play the overnight DOW Futures to set up Actual DOW to open at a certain point so they can take advantage during EST trading hours. I understand DOW Futures is not as liquid as the Actual DOW and hence it’s possible to make DOW futures swing more with a relatively smaller amount of funds, compared to what it would take to move the Actual DOW as much.

For instance, is it a common strategy for such investors to ramp up overnight DOW Futures buying certain stocks, so those stocks open up at a certain high point in Actual DOW, which they sell in the Actual DOW to make a profit. Is this why Actual DOW may open high or low, following the DOW Futures, and then go the other way - especially in chaotic times like nowadays.

In Forex, I know that USD follows DOW... and there is a theory that forex traders manipulate overnight to set up a certain way, so they hedge positions on the forex side during EST trading hours to make a profit in forex. Given the 100 times leverage in forex trading; setting up DOW Futures a certain way can be very profitable for forex trades in EST hours. I am guessing such forex traders would also have stock positions that they would managed in Actual and Futures DOW.

To complicate further; I understand there is a relationship between DOW, Gold, Oil, USD which drives each other - at any given point in time - depending on which is the dominant derivative under given market conditions, technicals and fundamentals, driven by overall greed vs fear barometer in the market.

I understand that those who closely follow the long and short term technicals and fundamentals of... key stocks that drives DOW along... and follow day to day relationships across DOW, Gold, Oil, USD... and have deep pockets... can fairly predict/drive the DOW Open and hedge themselves up nicely for profiting during EST trading hours. The options market also plays a role in this.

I may not have phrased my question most eloquently and may have basic knowledge gaps in my understanding of how DOW Futures works. I am curious to learn, hence reaching out for guidance. Appreciate any guidance you can provide on this.
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