Introduction to the Dow Jones Industrial Average

The Dow Jones Industrial Average, otherwise known as DJIA, or DJ for short, is a stock index created by Wall Street Journal founder Charles Dow to measure the development of the US stock market. At 138 years old, it is also one of the world's oldest stock indexes.

The Dow Jones consists of a total of 30 stocks, usually the largest or most well-known listed companies in the United States, covering a broad range of sectors, including industrial, financial, technology, retail, and insurance.

Due to the high correlation between its constituent stocks and the real economy, the performance of the Dow Jones is often considered a key metric in determining the health of the US economy.

The Dow Jones is 'price-weighted', meaning the higher an individual constituent stock's price, the more influence it will have on the overall value of the index.

This method of calculation is different from that of the S&P 500 or Nasdaq-100, both of these examples being 'capitalization-weighted' instead.

Quick Summary:

• The DJIA was launched on the 16th of February 1885
• It has 30 constituent stocks, typical examples being UnitedHealth, Goldman Sachs, Home Depot, Microsoft, Salesforce, McDonald's
• Its value is determined by ‘price-weighted’ calculations
  
  

As stocks that are selected for the Dow Jones need to be the 'most representative' within their respective industries, their performance is closely monitored. In some cases, this can mean removal from the Dow Jones index if seen to be 'under-performing'. For example, the original 12 stocks included in the Dow Jones at inception have all since been removed.

In the modern day and since 1928, the Dow Jones has included 30 stocks, with one constituent stock being removed and replaced every two years on average.

Despite its full name being the 'Dow Jones Industrial Average', the index no longer focuses on stocks purely of an 'industrial' classification.

In the modern day, the Dow Jones has expanded to include sectors such as technology, finance, and retail, to name some examples.

In any case, the word 'industrial' only has historical significance today.

1. Its' method of value calculation means that stocks of a higher price may disproportionately affect index value
   Owing to the 'price-weighted' algorithms by which the value of the Dow Jones is determined, companies with the same market capitalization but trading at different stock prices will have varying levels of influence on the overall value of the index. As price alone is not an accurate indication of true market value, this can mean the performance of the Dow Jones is not fully representative of real market conditions.
2. There are too few stocks within the Dow Jones
   When compared to other major US stock indexes, like the S&P 500, the Dow Jones includes far fewer stocks. By virtue of this, it can be argued that the DJIA is not as representative of real market conditions as other indexes.
   
   

One method to trade the Dow Jones index is by using contracts for difference, or CFDs, which, through the use of leverage, allow investors to trade with a small amount of funding. If price is expected to rise, traders can take a long CFD position and a short CFD position if price is expected to fall, making CFDs a good option for both long and short trading.

In addition, CFDs also have the welcome benefit of being tradeable 24 hours a day, meaning investors are able to react to after-hours events, such as earnings reports and market-moving news headlines, which would not be possible with other forms of investment due to market closure.

When trading CFDs, selecting the right CFD broker is essential. Here are three guidelines that you should bear in mind:

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3. Select a company that protects your funds and offers easy deposits and withdrawals
   
   

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