The Dow Jones Industrial Average is only composed of 30 stocks, and its constituents are determined by price rather than market capitalization.

What drives the Dow Jones price?

As with any share index, it is the price of the underlying shares that moves the price of the index. In this case, it is the 30 biggest listed companies in America. Although traditionally, these would have been listed on the New York Stock Exchange, today they only need to be listed on one of the big US exchanges. At the time of writing, some of the most expensive companies in the index were 3M, Goldman Sachs Group, IBM and United Health.

How volatile is the Dow Jones?

The performance of the Dow is driven by a smaller series of shares, even if these are some of the more expensive companies in the US. Because the Dow has been measuring US stock prices since the 1890s, it has been through some of the worst crashes in US history, in particular the Wall Street Crash of 1929, but also the Black Wednesday crash of 1987. However, the changing structure of the US share markets, e.g. across more than a dozen different exchanges, and the lack of liquidity in the share markets as buyers and sellers become more selective, means that volatility in the Dow and its underlying shares has increased in recent years.

The Dow Jones Chart

Here’s how can you trade the Dow Jones

The Dow is still readily accessible via a range of instruments, including futures, options, ETFs and CFDs. The choice of whether to trade the Dow or the S&P 500 largely boils down to individual preference, but some factors include the larger average market cap of Dow constituent companies and the different price calculation methodologies.

10th November 2016
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