You will learn about the following concepts
- Introduction to Dow Jones Average
- The DJIA in details
- Trading DJIA using binary options
The Dow Jones Industrial Average is one of the oldest stock indices as it was founded in 1896. Since then it has gone through a lot of changes but one thing has not changed – the DJIA still consists of exactly 30 of the largest blue chip companies in the U.S.
Keep in mind that the name of the DJIA can be misleading – this average does not give you a true idea about the condition of the industry in the U.S. as it only consists of 30 companies which is far from enough to provide accurate information about the overall condition of the U.S. industry.
The companies in the DJIA are arranged into 9 sections – Industrials, Consumer Services, Technology, Healthcare, Financials, Oil & Gas, Consumer Goods, Telecommunications and Basic Materials. The largest sector is the Industrials with 20.41% share, while the smallest one is Basic Materials with just 3.26%.
The DJIA in Details
Many traders still think that all stock indices are formed in the same way, but this is not entirely true. The Dow Jones Industrial Average is the best example for this – this index is often criticized due to the fact that the weight of the companies included in it is decided by their stock price. As we already mentioned in another part of our tutorial, indices such as S&P 500 use the market capitalization of companies to determine their weighting. As you can imagine, trading a price-weighted index can be a bit different than trading regular market cap-weighted indexes.
The stocks included in the Dow Jones Industrial Average are selected by the editor team working at the Wall Street Journal. Although the editors are always on the lookout for new companies, which are worth adding to the index, we have to admit that the DJIA is rarely changed and there have been the same 30 companies for a while now.
Trading the DJIA
When talking about DJIA binary options, you have to remember that this is one of the most volatile stock indexes available on the market. Its volatility makes it a good choice for expert traders with years of experience behind their backs, but it should be avoided by beginners who are still not capable of performing proper technical and fundamental analysis.
Trading the DJIA on the traditional market is avoided by retail traders, because this asset’s volatility can lead to massive losses. In the meantime, trading DJIA binary options is not that risky, because traders can limit their losses and control their bank balance better.