How to trade the US DJIA 30 index? [Guide]

One of the best-known indices that give exposure to US companies is Dow Jones Industrial Average 30 (DJIA 30). It is one of the few indexes weighted by price. It is also one of the oldest indexes in the world. However, many professionals now believe that the DJIA not suitable as a benchmark showing the condition of the US stock market. Due to the limited number of companies (only 30), it is difficult for him to adequately represent the structure of the American stock market. Much better suited for this purpose are indices such as S & P 500 or Russell 3000. 

The Dow Jones Industrial Average is weighted by price. This means that companies with a higher nominal value of shares have a greater weight in the index. In calculating the index using this method, the divisor is very important, as it is adjusted for splits of shares made by companies included in the index. As of June 3, 2021, the divisor was 0.15189which means that an increase in the share price of any component by $ 1 results in an increase in the DJIA index by 6,5837 points. It is worth mentioning that the index may include companies belonging to the S&P 500 index. These are excluded companies operating in the transport and public utility segments. 

History of the DIJA index

The history of the index goes back to the 26th century. The first Dow Jones Industrial Average was calculated on May 1896, 1884. Interestingly, it is not the oldest index that is still being calculated. The priority palm is the Dow Jones Transportation Average, which was established in XNUMX. The DJIA index was created by Charles Dow, who worked for the Wall Street Journal and co-founded the Dow Jones & Company.

Initially, the Dow Jones Industrial Average comprised 12 components, including:

• The American Cotton Oil Company (now part of Unilever),
• The American Sugar Refining Company (now part of Domino Foods Inc.),
• Tennessee Coal, Iron and Railroad Company (part of US Steel from 1907),
• United States Rubber Company (currently individual units of the company are part of such companies as Michelin or Raytheon),
• General Electric Company (still listed on the stock exchange).

Source: The American Sugar Refining Company campaign

The index set its minimum during the panic of 1896, when it fell to the level of less than 28,48 points. 1914 is also worth mentioning, when the DJIA 30 dropped from 71,4 points in early July to just over 49 points in October 1914. It is worth mentioning, however, that between July 30 and December 12, 1914, trade on the NYSE was closed. However, companies were quoted on the OTC market thanks to brokers. After the market opened in December, the index increased to 74,56 points.

In 1916, the index was expanded to 20 companies. Among the companies that were then components of the index can be mentioned American Telephone & Telegraf Company (AT&T) or Western Union Company. In 1928, the index increased to 30 components. Companies such as Chrysler (now part of the Italian Fiat) and Wright Aeronautical (now part of the Curtiss-Wright listed on the stock exchange) have joined the DJIA. In 1929, the Dow Jones Industrial Average set a new record of 381,17 points. A few years later (in 1933) the index fell to the level of 41,22 points. The peak of 1929 was not surpassed until November 1954 (after more than 25 years). The level of 1000 points was broken for the first time on November 14, 1972. In turn, the level of 10 points was exceeded on March 000, 29. During the reign of the dotcom bubble, a book was written Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Marketwhich was released in October 1999. According to the authors of the book, the index was supposed to break this level before 2005. 

Interestingly, the forecast has not come true to date. Currently, the index has over 35 points. 

Chart - Dow Jones Industrial Average 30

Index composition

According to data provided by S&P Dow Jones Indices (SPDJI), the DJIA index has 30 components. At the end of July 2021, the dividend yield of this index was 1,83%. On July 30, 2021, the largest component of the Dow Jones Industrial Average had an average capitalization of $ 361,2 billion. The largest components of the index were Apple ($ 2446 billion) and Microsoft ($ 2 billion). At the other end were companies such as The Travelers Companies ($ 263 billion) and Walgreen ($ 40 billion).

The largest shares are held by companies from the following industries:

• IT - 22%,
• healthcare - 17%,
• industry - 16,3%,
• finance - 15,9%,
• discretionary goods - 13,9%.

The largest components of the index are the following companies:

• Apple
• Microsoft,
• Visa,
• Johnson & Johnson,
• JP Morgan.

Below is a brief overview of several of the companies in the Dow Jones Industrial Average 30 index.

Apple Lossless Audio CODEC (ALAC),

Company history Apple Lossless Audio CODEC (ALAC), dates back to the late 70's. During these several decades, the company has managed to launch many breakthrough products on the market. The company is known for its smartphones (iPhone), which find their admirers in many countries. It is one of the "big five" American technology companies (the others are Amazon, Google, Facebook, Microsoft). Apple also makes money by selling its computers (Mac), Apple Watch and offering many additional services (Apple Store, Apple Music, Apple TV, iCloud). 

Apple stock chart, interval W1. Source: xNUMX XTB.

Nike

It is one of the companies included in the Fortune 500 list. The history of the company dates back to the mid-60s. The company quickly gained popularity and is now one of the largest manufacturers of footwear and clothing  sports. It is now becoming more of a life-style brand. The company's products include products such as AirMax, Jordan and Nike Blazers. The company's motto is "Just Do It". Nike also owns the Converse brand. Nike entered the DJIA in 2013 when it replaced Alcoa.

Nike stock chart, interval W1. Source: xNUMX XTB.

P & G

It is one of the largest consumer products companies. It is worth mentioning that it is the company with the longest "experience" of the current index components. P&G joined the Dow Jones Index in 1932. The company has a very rich "portfolio" of brands, which include: Ariel, Oral-B, Blend-a-med, Pampers, Lenor, Fairy, Gillette, Braun, Old Spice, Head & Shoulders and Always.

P&G stock chart, interval W1. Source: xNUMX XTB.

J&J

It is one of the few US companies with an AAA credit rating by S&P. So this is a higher level than the US government (AA +) has. History Johnson & Johnson dates back to 1886. The company was last included in the DJIA index in 1997. The company has a very rich "portfolio" of consumer products, including Listerin, Johnson's and Neutrogena. The company also supplies drugs and vaccines (including COVID-19) and produces medical tools.  

J&J stock chart, interval W1. Source: xNUMX XTB.

3M

Until 2002, the company was called the Minnesota Mining and Manufacturing Company, and has been called 3M for nearly twenty years. It is one of the largest American companies. The company was included in the DJIA 30 index in 1976. The company has many business segments. The company boasts that it has over 100 patents. The company's offer includes abrasives, tapes (household, construction and industrial), medical devices and accessories, and household products.

3M stock chart, interval W1. Source: xNUMX XTB.

Walmart

The company was founded by Sam Walton in 1962. Over the next several decades, Walmart became the largest retailer in the world. Since 2014, it is also the company that generates the largest revenues in the world. The company also employs over 2,3 million people. Walmart operates a supermarket chain with the largest markets being the United States, Mexico and Canada. The company also owns shares in the Indian company Flipkart, which operates in the e-commerce market. 

Walmart stock chart, interval W1. Source: xNUMX XTB.

What can affect the DJIA 30?

The condition of the American and world economy

The index is dominated by multinational corporations that generate revenues from many countries. As a result, the economic slowdown in the global economy may adversely affect the financial results of companies. Companies that generate a large part of their revenues in the USA depend more on the economic situation in the American economy. An example of such a company is Walmart, which has 5342 outlets in the United States and 6101 in foreign markets. 

Financial results of companies

In the long term, the financial results generated by the enterprise are the most important in the valuation of the company. Increasing revenues, profits, and free cash flow (FCF) are solid arguments for long-term increases in stock prices. For this reason, it is worth following the financial results of companies included in the index. Especially those that have the greatest impact on changing the index value.

How You Can Invest in the Dow Jones 30 Index

DJIA 30 Futures

Due to the fact that the DJIA is one of the most popular American indices, the offer of futures contracts on this index is very wide. An investor can take advantage of a large contract (Big Dow) with a multiplier of $ 25 per point. This means that the notional value of the DJIA index contract is currently $ 875.

Another possibility is to use a "normal" contract of $ 10. This gives you the option to trade a futures contract with a face value of more than $ 350. Of course, this is not the end of the possibilities. For those who want to scale their positions more precisely, a "mini" version of the contract is available. The multiplier is $ 000 which means that it is only 5/1 the size of the "Big Dow" and half of the "base" contract.

However, you do not need to have significant capital to invest in futures on this index. For less than two years, "smaller" contracts have been operating, which are called micro e-mini. The value of one point in this index is $ 0,5 (1/10 of the e-mini contract), which means that the notional value of the micro contract is $ 17.

Contracts for exchange differences (CFDs)

Another option, especially popular with retail traders, is speculating on Dow Jones 30 Contracts for Difference (CFDs) with Forex brokers. Due to the popularity of the index, virtually every broker has it on offer. However, it should be remembered that due to the lack of standardization of CFD instruments, the offer may differ depending on the broker. Below we present selected offers of brokers on CFDs based on DIJA 30.

Broker
End	Poland	Cyprus, Australia, St. Vincent & Grenadines	Great Britain, Cyprus
Dow Jones symbol 30	US30	US30	US30
Min. Deposit	PLN 0 (recommended min. PLN 2000 or USD 500, EUR)	50 USD	PLN 100
Min. Lot value	price * 5 USD	price * 1 USD	price * 1 USD
Commission	-	-	-
Platform	xStation	MT4, MT5, cTrader	MT4, MT5
	REVIEW	REVIEW	REVIEW
	CREATE AN ACCOUNT	CREATE AN ACCOUNT	CREATE AN ACCOUNT

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.

Stocks and ETFs at DJIA 30

Another option that gives you the opportunity to invest in Dow Jones 30 is the purchase of shares of companies included in the index. Another option is to purchase ETFwhich are a convenient alternative and allow for exposure to this market even for investors who do not have many assets.

An example is a fund SPDR Dow Jones Industrial Average ETFwhich was created by State Street Global Advisor (SSGA). ETF was founded in 1998. The benchmark for the ETF is the DJIA 30 index. The fund is physically replicated. It is worth mentioning that the SPDR Dow Jones Industrial Average ETF has assets under management (AUM) worth $ 30,6 billion. The annual fund management cost (TER) is 0,16%.

Brokers offering stocks and ETFs

For example on XTB Today, we can find over 3500 equity instruments and 400 ETFs, a Saxo Bank over 19 companies and 000 ETF funds.

Broker
End	Poland	Denmark	Cyprus *
Number of exchanges on offer	16 exchanges	37 exchanges	24 exchanges
Number of shares in the offer	approx. 3500 - shares circa 2000 - CFDs on shares	19 - shares 8 - CFDs on shares	approx. 3 - CFD on shares
The amount of ETF on offer	approx. 400 - ETF approx. 170 - CFD on ETF	3000 - ETF 675 - CFD on ETF	approx. 100 - CFD on ETF
Commission	0% commission up to EUR 100 turnover / month	according to the price list	Spread depends on the instrument
Min. Deposit	PLN 0 (recommended min. PLN 2000 or USD 500, EUR)	0 PLN / 0 EUR / 0 USD	PLN 500
Platform	xStation	SaxoTrader Pro Saxo Trader Go	Plus500 platform
	REVIEW	REVIEW	REVIEW
	CREATE AN ACCOUNT	CREATE AN ACCOUNT	CREATE AN ACCOUNT

* PLUS500 CY offer

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.

Options on the DJIA 30

It is also possible option trading on the Dow Jones Industrial Average. The contract size is the same as the futures contract. There are options for a normal size futures ($ 10 multiplier) as well as an e-mini version ($ 5 multiplier). The options have an American style of exercise and a cash settlement. There is a wide variety of options on the market. From quarterly (March, June, September, December), which are always available for the next three quarters, monthly (3 next months) and weekly (3 weeks) options.

Do you know that…?

Saxo Bank is one of the few Forex brokers that offers vanilla options. The investor has a total of over 1200 options at his disposal (currencies, stocks, indices, interest rates, raw materials). CHECK