What is the Dow Jones? | Definition and History

The Dow Jones Industrial Average (DJIA), also referred to as Dow 30, is a stock market index tracking 30 publicly owned blue-chip companies traded on the New York Stock Exchange and Nasdaq.

This index got its name after Charles Dow, who created it with his business partner Edward Jones. Dow Jones consisted of 12 U.S. companies when it was launched. All these companies were known to be engaged in industrial activities. 

The index has changed over the years based on the economy and the included companies. Mainly, this change occurs when a component goes through financial distress due to the shift in the economy. 

Dow Jones in a nutshell

  • The Dow Jones Industrial Average (DJIA) tracks 30 major publicly traded companies in the U.S.
  • Named after Charles Dow, the index began with 12 industrial companies in 1896.
  • Changes in the DJIA occur based on economic shifts and financial distress of components.
  • Inclusion in DJIA requires a significant role in the U.S. economy and NYSE/NASDAQ listing.

Components of the Dow Jones Industrial Average 

The official logo of the Dow Jones

The best thing is that there is no rule for the companies included in the list of stocks in DJIA. But it’s important that those companies must be responsible for a significant portion of the U.S. economy. Additionally, the companies should also be listed on the NYSE or NASDAQ

If there is a change in the economy, the DJIA will also change accordingly.

Below are some recent changes: 

  • March 2015, Apple replaced AT&T
  • September 2017, DowDuPont Replaced DuPont 
  • July 2018, Walgreens Boots Alliance Replaced General Electric

How does the Dow Jones work?

The reason DJIA was created was so it could measure the movements of leading companies in the U.S. For this calculation, it uses a price-weighted index. Stocks that have higher share prices are known to weigh more than stocks that have low share prices. 

Earlier, the measurement was done by calculating the average. The stock prices of 12 companies were added and divided by 12. Later, the calculation index was changed. This change is known to represent the relative importance of each component. 

Today, the Dow Jones Average has become a price-weighted index. Here, 3, the price of 0 stocks is added and divided by a divisor, i.e., Dow Divisor. The Divisor’s role is to counteract certain structural changes’ effects. 

History of the Dow Jones

Talking about history, this index was created in May 1896 by Charles Dow and his business partner. After two years, DJIA developed its first stock index, the Dow Jones Transportation. It is one of the highly recognized gauges of the U.S.  

Mainly industrial companies were linked with the DJIA, like railroads, tobacco, gas, and sugar. In short, this index helps in reflecting the performance of 30 stock leading U.S. blue-chip companies. 

Since the foundation, the index has changed. One major change was an update from 12 stocks to 20 stocks. Later, the number increased to 30 stocks, which remains a rule today. 

In 1932, eight stocks were replaced with new components, like Coca-Cola and Procter & Gamble Company. During the Great Depression and Great Recession, DJIA saw significant changes in the components because a few companies collapsed. 

Below are the original 12 Dow Jones Industrial Stocks: 

  • American Tobacco 
  • American Sugar 
  • American Cotton Oil 
  • Chicago Gas 
  • General Electric 
  • Distilling and Cattle Feeding 
  • Laclede Gas 
  • National Lead 
  • North American 
  • Tennessee Coal, Iron, and Railroad 
  • U.S. Rubber 
  • U.S. Leather

Along with the companies, the way DJIA is calculated has also changed. Initially, there was a simple calculation, but today, the sum is divided by Dow Divisor, which gets adjusted in certain structural change events. 

How to trade the Dow Jones with Binary Options?

The Dow Jones Industrial Average (DJIA) stands as an iconic indicator of economic health. In this guide, we’re going to break down the details of trading with the Dow Jones using Binary Options.

1. Open a Binary Options Trading Account

To get started with Dow Jones binary options trading, the first step is setting up a dedicated trading account with a reputable broker. This involves an online form, coupled with identity and address verification. Many brokers, including those on the American Exchange (AMEX), provide access to binary options for renowned indices like the Dow Jones.

2. Top Up Your Account

Once your trading account is active, the next step is funding. Brokers typically offer various payment methods, ensuring flexibility for traders. Whether through credit cards or bank transfers, choose the option that aligns with your preferences and deposit the necessary funds into your trading account.

3. Pick the Dow Jones Index

The Dow Jones Industrial Average comprises top U.S. companies, making it a prime index for binary options trading. Select the specific Dow Jones index that aligns with your trading strategy and preferences. Consider market trends, historical data, and volatility in making your decision.

4. Choose Trade Amount and Expiry Time

Tailor your binary options trade on the Dow Jones by specifying the amount and selecting the expiry time. The flexibility of binary options allows for diverse expiry periods, ranging from minutes to hours. Success hinges on predicting whether the price will be above or below the chosen level at the specified expiry time.

5. Place Your Trade

With parameters set, execute your Dow Jones binary option trade by choosing the “higher” or “lower” option. Confirm your selection, and the trade will be initiated.

6. Close Out or Wait for Expiration and take your profit

Once your Dow Jones binary option is active, monitor market movements closely. Mitigate risks or secure profits by using the “Close now” function, an offering by many brokers. Alternatively, let the trade run until its scheduled expiry, allowing you to capitalize on potential market shifts.

About the author

Percival Knight
Percival Knight is an experienced Binary Options trader for more than ten years. Mainly, he trades 60-second trades at a very high hit rate. My favorite strategies is by using candlesticks and fake-breakouts

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