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Best Dow Jones Index Trading Brokers

There are hardly any people who have not heard the name Dow Jones in various news programs related to economics and finance. However, hearing about something and knowing exactly what it means are completely different things, so let’s look at what the specifics of this stock market index are and how the Dow Jones Industrial Average (DJIA) works.

DJIA encompasses blue-chip stocks of 30 of the largest US companies today. We can safely define them as the “who is who” in the American economy as some of the names are Apple Inc., Microsoft, Nike, and The Coca Cola company. The Dow falls within the category of price-weighted indices and is often considered a barometer for general market conditions in the country.

How Dow Jones Trading Works for Traders and Brokers

Dow Jones tradingBrokerage companies play a key role in Dow Jones trading. Brokers act as sales agents who directly interact with clients and connect buyers and sellers to perform transactions with the index. To use their services you need to pay certain fees or commissions that are a percentage of the value of the brokered deal.

What is specific about indices trading including Dow Jones is that it cannot be done directly but through derivative tools:

  • Contracts for difference (CDFs) – agreements for paying the difference between the price of the open and final trades. Profit comes from price movement without traders or investors actually owning any assets.
  • Futures – In general, futures contracts are related to assets exchanged at a set price on a set expiration date. However, in the case of Dow Jones, there are no physical assets as the index simply represents a group of stocks.
  • Exchange-traded funds (ETFs) – investment instruments that hold the shares of the index constituents. The other option is to trade Dow Jones stocks individually.

The bid-ask spread is the compensation for index market makers taking the risk of holding assets for the time until the deal is completed. It represents the sum by which the maximum price a buyer is ready to pay exceeds the minimum the seller is willing to accept.

Top 10 Dow Jones Trading Brokers

choosing a brokerIn the dynamic realm of index trading, it is of utmost importance to find a reputable and competent Dow Jones trading broker that will enable you to speculate on floating prices via CFDs, futures, options, spread betting, and ETFs. TradingPedia has picked 10 of the best index brokers today and has reviewed each of them, so keep on reading.

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Dow Jones FAQ

1. Do I need to join a US trading broker to invest in Dow Jones?

First of all, there is no citizenship requirement for buying stocks in US companies. DJIA is among the most traded stock indices in brokerage firms licensed in Asia, Europe, Australia, etc. If you are based outside the US, you may be asked to provide additional ID verification documents although this is not a common practice.

2. How is the Dow Jones calculated?

The individual stock prices of all DJIA constituent companies are added together and after that divided by the “Dow divisor”. The divisor is not fixed but updated from time to time to reflect mergers, stock splits, spinoffs, or other modifications.

3. Can I invest directly in the Dow Jones?

As DJIA is not an individual company there are no stocks you can buy. Trading this index is done through derivative instruments - exchange-traded funds (EDFs) and contracts for difference (CFDs) for example. The other option is to buy stocks of all the 30 DJIA constituents.

4. How were the 30 companies in the Dow Jones selected?

There are no strict criteria for inclusion. The current 30 blue-chip companies are subjectively determined by Wall Street editors and S&P Dow Jones Indices representatives.

5. What do I need to do to start trading Dow Jones?

First, select a legitimate trading broker and open an account. We advise you to compare the T&Cs of at least three companies and then make up your decision. Before joining the platform, check if it features the specific financial instrument you intend to use. Some brokerage firms allow index trading only via CFDs while others also execute futures trades.