Dow Jones Trading - How to invest in the US30 index?

The Dow Jones Industrial Average is one of the best-known stock market indices that track the performance of 30 large U.S. blue chip companies listed on NASDAQ and NYSE. The name comes from Charles Dow and Edward Jones, who created it in 1896. The index has been used for over 100 years by stock market analysts to measure the strength of the U.S. stock market and the overall health of the economy.

When the index was created, it included the listings of 12 publicly traded industrial companies that operated in the railroad, sugar processing and oil industries, among others. Although these businesses seem outdated today, they were revolutionary in the early 20th century, and the popularisation of railroads contributed to one of the speculative bubbles. Similarly, Sugar's stock was famous among speculators for its enormous volatility. Sugar did not become a widely used additive in the food sector until the 20th century, when Hershey's created the first sugar bar in 1900, which contributed to the high volatility of sugar-related stocks.

Today, the Dow Jones Index has changed beyond recognition, with technology companies like Microsoft and Salesforce listed on it, as well as oil and gas companies such as Chevron. However, the index is still called industrial, also due to its industrial origin.

Let's take a look at how the index is structured today and what makes Dow Jones (US30) so popular among traders and investors.

What is Dow Jones and how does it work?

Dow Jones is one of the most popular American indices of 30 prominent stocks listed on NASDAQ or New York Stock Exchange (NYSE).

The composition of the If a company declines or loses a key role in the economy, it may leave the index Dow Jones Index changes as the U.S. economy evolves. and a new company may join it. The index excludes companies in the transportation and public sectors.

A company whose stock is losing value (declining capitalisation) due to declining earnings or financial performance may leave the index, losing its blue-chip designation. Stocks with higher stock valuations weigh the most in the index. This means that an increase in the valuation of a company that has a higher weighting in the index will raise the value of the index much more than an increase in a company that only slightly adds to it. 

Historically, when looking at the Dow index, its co-founder Charles Dow would add the prices of all 12 stocks making up the index and then divide by twelve - calculating the index value from this. However, this proved problematic in the face of 'corporate actions' such as stock splits and share issues.

Nowadays, the index has a fixed divisor and is used for one point movement of each of the 30 listed companies in the index. The value of the divisor fluctuates and as of June 20 oscillates around 0.151. The Dow Jones is therefore a weighted arithmetic average - unlike the S&P 500, it does not reflect the market capitalization of its constituent companies. 

Rather, the Dow represents the sum of the prices per share of all 30 companies divided by the divisor. A change of X points in any of the stocks in the index causes the index to change by exactly the same number of points.

The formula shows it this way: 

Dow Jones index value = share prices of 30 companies / fixed division

Which companies make up Dow Jones?

The index is composed of so-called blue-chips, i.e. companies which boast stable, predictable and growing earnings and are key in their industry. Currently, the index includes McDonald's and Wal-Mart, as well as technology companies such as Cisco, Salesforce, Apple, Microsoft and Walt Disney.

In 1997 the index included Wal-Mart, Hewlett Packard, Johnson&Johnson and Traverelrs Group. 

In 1999, Intel, Microsoft, Home Depot and SBC Communications debuted in the index; Chevron and Goodyear, among others, left the index.

In 2020, ExxonMobil, Pfizer, Honeywell, Salesforce, Amgen and Raytheon Technologies debuted.

Looking historically at the most prominent stocks in the index, McDonald's has been in the index since 1987, Apple since 2015, IBM since 1979, and Intel since 1998. JP Morgan debuted in 1991 along with Catterpillar and Microsoft. Proctor&Gamble's stock has held up the longest (since 1932).

Type of positions on Dow Jones

When you want to start trading the Dow Jones index, there are two positions you can take: a short position or a long position. It is important to remember that major news that may affect the health of the economy tend to spike market volatility and the Dow Jones index is of course sensitive to it. The position you choose to take will, therefore, depend on your outlook for the overall health of the economy and the direction of consumers and investments volume. 

Long position on Dow Jones

A long 'BUY' position is particularly popular when the market is in a good mood and investors feel safe or when there are external circumstances that can bring positive sentiment back into the market. This is when a rebound can be particularly dynamic.

In such a situation, if you assume that the economy may experience an improvement in investor sentiment following an economic or political event, you can take a long position on the Dow Jones. Usually risk-loving investors return quickly to their investments once the sun comes out for the market again.

If market sentiment indeed improves, your prediction will be correct and you would make a profit betting on the price increase of the Dow Jones (US30) index. Conversely, if you were to take a long position and the market fears a downturn, your position would record a loss.

Short position on Dow Jones

A short ‘SELL’ position is especially popular when there is fear and uncertainty in the market or when there are external circumstances that could cause negative sentiment to return.

In such a situation, if you assume that the economy may experience a sharp deterioration in investor sentiment following an economic or political announcement, you can take a short position on the Dow Jones (US30). In this way, you can play out trading strategies for specific world events that could increase or significantly decrease asset price volatility. 

If fear is indeed present in the market, your prediction will be correct and you will make a profit by betting on a decline in the price of the Dow Jones index. Conversely, if you take a short position but the market will still rise, your position will record a loss.

Best time to start trading Dow Jones

The Dow Jones index tends to make much smaller price movements than other US indices due to the nature of the large companies listed on it. These are mostly companies with a long history, which have some kind of leadership in the sector, like Microsoft, Chevron or McDonald’s. Due to this fact, in periods of panic or unstable situations in the world, Dow Jones loses less than other US indices. However, investors usually leave any risky assets for some time and turn to more stable investments or cash. 

The Dow Jones index is also prone to dynamic price rebounds when positive sentiment returns to the market. This can be attributed to macroeconomic factors that are causing investors to return to investing in the best Wall Street business. Companies which are listed on Dow Jones are creating the core of the US economy. Sometimes large capital returns to less riskier stocks first so indices like NASDAQ or Russell 2000 can be even a few steps behind the Dow Jones growth when indices rebound. Dow Jones provides high but not as high as NASDAQ returns, and it has a less risky model (Risk/Reward Ratio works).

It is certainly a good time to be interested in Dow Jones index trading during panic periods, which cause a strong sell-off of shares of large companies that have been providing good business solutions for decades. A large number of contrarian investors looking for a trend reversal may take important long 'BUY' positions in anticipation of a price rebound. Similarly, in the case of euphoria when the index is at historic highs, risk averse traders may look for a period of weakness in global markets to take short 'SELL' positions on the Dow Jones, betting on declines in US economic growth.

Interesting times to start trading Dow Jones are when the largest companies in the index release their quarterly or full year financial results, as well as world events that can cause high volatility, such as FED meetings, major political meetings or various military crises.

How to start trading Dow Jones (US30)?

Dow Jones trading is available in our xStation trading platform where you can start trading all the biggest US indices by entering into CFD (contract for differences) transactions on the US30 instrument and use leverage. By trading Dow Jones you can take advantage of market volatility and open positions during very fast price movements. Leverage is very risky and can result in losses, but it can also multiply a day trader's profits. Trading Dow Jones (US30) is dedicated to active traders who have no problem with portfolio volatility caused by financial leverage.

Thanks to the 1:20 leverage, you will need only a 5 % margin to open a position. By using 1000 USD, you can open a position which is worth 20,000 USD. Because of leveraged CFD instruments high risk level potential revenue of the position can also be high, but potential loss is possibly higher as a result. Trading Dow Jones (US30) gives traders the opportunity to open short and long positions. Short positions give traders the opportunity to make profits when market prices are falling.

If you want to read more about CFD and financial leverage, you can find information here: https://www.xtb.com/en/education/what-is-leverage

The only fees you incur for such trading are spread (difference between buying price ASK and selling price BID) and swap points. The spread is very small and costs cents depending on the size of your position. Swap points are the costs the broker incurs to fund leveraged positions; swaps are charged daily to the open position on the Dow Jones instrument.

By trading Dow Jones contracts you can take advantage of volatility and open positions even during very fast price movements. Leverage is a high risk instrument and may occur losses, but can multiply a day trader's profits also. 

Trading Dow Jones is speculative and for active traders only the price fluctuations matters on this instrument. This type of contract is a financial agreement which pays out the difference in settlement price between open and closed transaction without any physical delivery of the traded instrument. 

Online trading allows you to start trading Dow Jones without leaving home, with zero commissions and low spreads. Also due to the high liquidity of the Dow Jones (US30) market you can close your position with one mouse click at any time when the market is open. This is why online US30 contracts trading is increasingly popular.

Dow Jones Stocks Investment

Trading with leverage on indices carries a high risk, of course, but well taken positions can give very high returns on such investments. For investors who are not very active and prefer only passive investments in the Dow Jones index, we also offer ETFs giving exposure to the U.S. Dow Jones industry index, such as accumulating ETF iShares Dow Jones Industrial UCITS ETF CIND.UK CNDX.UK or ETF CFD SPDR Dow Jones Industrial Trust DIA.US which is tracking Dow Jones Index prices and is addressed for more riskable investors.

We also offer shares of all 30 companies listed on Dow Jones including UnitedHealth Group UNH.US, Goldman Sachs GS.US, Home Depot HD.US, McDonald’s MCD.US, Chevron CVX.US, Caterpillar CAT.US, Boeing BA.US and many more.

Dow Jones (US30) index price

US30 Index (Dow Jones) is not a very volatile instrument, but still the price moves when the market is open. Also because of financial leverage on CFD, keeping track of the US30 quotation is very important for traders. At xStation, we provide real-time quotes for futures contracts on Dow Jones by offering CFD on US30 instrument:

Dow Jones Trading hours

What about available Dow Jones (US30) trading hours? This information is important for all traders. US30 trading is available 4 days per week from 00:05 CET to 23:00 CET with a short break between 22:15 CET to 22:30 CET from Monday to Thursday, and from 00:05 CET to 22:00 CET - on Friday. Trading US30 is of course not available during weekends on our platform because the Dow Jones futures market is closed during the weekend. The US30 price is static when the market is closed. At all other times the prices are constantly fluctuating.

The best time to start active Dow Jones trading on US30 CFD instruments is during periods of very high volatility when investors feel extreme emotions and high volume enters the market. When fear or greed is in the market, the Dow Jones index volume increases. This situation is a big opportunity for risk likeable traders, who are using leverage to take large profits on long but also on short positions. However, it’s important to keep in mind that leverage can lead not only to greater profits, but greater losses as well.

Increasing fear could be influenced by publishing negative political or macroeconomic news. Dow Jones isn’t the most volatile index (f.e. In comparison to NASDAQ) but still price action can be very high, especially during bear markets . The index consists of US industrial companies that tend to be not very volatile and have strong positions in the stock market. But when fear increases and is directly related to macroeconomic and political issues, e.g. information about the monetary policy of the FED or information about a global conflict or political crisis, even industrial companies with hundred years of history are starting to fall. This happens usually because of consumer negative sentiment which drives the industry sector. When demand for housing, cars or transport decreases, Dow Jones is in the face of recession. Weak economic data and geopolitical tensions are always a sign of big moves on the Dow Jones. But still upwards Dow Jones price moves can be dynamic when economic data shows that investors believe in economic strength again and demand is stabilising. Those times investors are feeling safe again and they return to risky, stock investments.