Summary
The Dow Jones Industrial Average (DJI) is a highly traded stock index that monitors 30 of the largest blue chip companies trading on the NYSE and NASDAQ. Created in 1896 and named after its creators, the Dow Jones Transportation Average. It is the second-oldest index in the US. It has a market capitalization of $10.35 trillion, making it one of the world’s most traded indices, alongside the S&P 500 and the FTSE 100. Trading Dow Jones can be a good investment, but requires the right broker.
This guide explains the important characteristics of a good broker for trading Dow Jones, including trading instruments, spreads, leverage, and payment methods. It also covers how to open an account and explains the features of different brokers, including their trading platforms, customer support, and reputation on social media. We will also highlight the pros and cons of Dow Jones brokers.
How to Trade or Invest in the Dow Jones Index?
Understanding how the Dow Jones is calculated is essential for successful trading. The DJI is made up of the 30 largest companies on NYSE and NASDAQ, weighted according to their share prices. Trading the Dow Jones is only possible through CFD brokers, allowing investors to take a future position on an asset with a small percentage known as a margin. If the margin rate of DJI is 5%, investors only need to put down $5,000 to trade a $100,000 position.
However, if a CFD deal goes poorly, traders could lose more money than initially invested. Therefore, only experienced traders should engage in CFD trading. Investors can also invest in the DJI through mutual stocks and ETFs that track the index or buy shares in the 30 companies that make up the index. No matter the method chosen, a CFD broker is necessary to trade the Dow Jones.
Which Companies are Listed on the Dow Jones Index?
All companies listed on the Dow Jones Index are grouped according to their industry or sector. This is done to provide a holistic view of the US economy. There are 9 sectors for the companies listed on the Index. The sectors and some companies in those sectors are:
- Industrials: Boeing Co., etc.
- Financials: Goldman Sachs, American Express Company, etc.
- Consumer Services: Walmart, Home Depot Inc., etc.
- Technology: Apple Inc., Intel Corporation, etc.
- Healthcare: UnitedHealth Group Incorporated, Walgreens Boots Alliance Inc., etc.
- Consumer Goods: Coca Cola, etc.
- Energy: Chevron Corporation, etc.
- Basic Materials
- Telecommunications: Verizon Communications Inc., etc.
What Affects the Price of Dow Jones?
Some factors that affect the price of Dow Jones include problems with heavyweight companies or sectors, government economic policies, geopolitical policies, GDP figures, unemployment rates, and other important political or economic benchmarks that affect the stock market.
Factors to Consider when Choosing Your Broker to Trade Dow Jones
When comparing brokers to trade Dow Jones, there are a few factors to consider, and they include:
Regulation
Choosing a regulated Dow Jones broker is crucial to safeguarding your funds and personal information. Regulated brokers comply with safe laws and practices enforced by regulatory bodies such as FINRA, SEC, and CFTC for the USA, ESMA for brokers in Europe, FCA for brokers in the UK, and ASIC for Australian brokers. Unregulated brokers do not follow such safety laws and may put investors at risk. Ensure your Dow Jones broker is regulated by the relevant regulatory body in your region.
Spreads
A spread is the difference between an asset’s ask and bid price. Usually, when you trade assets like the Dow Jones Index with a broker, you are exchanging your money for an index. The broker often buys at a lower price and sells at a higher price than the market value. The difference between the buying price and the selling price is called the spread.
The spread is the most common fee you will be charged by Dow Jones brokers for trading on their platform. It is therefore important that you know the different spreads offered by these brokers and select the tightest ones.
Leverage
Leverage lets you trade bigger positions than your deposit, up to 20 times. But it can also be risky if you make a loss. Different brokers have leverage limits, usually set at 1:20 or 1:30, and corresponding to regulatory body limits in that region. Before trading, check the broker’s leverage limits. For example, in Australia, the ASIC sets the Dow Jones leverage limit at 1:20.
Trading Platforms
A trading platform is software brokers use to place trades in the market. Popular platforms include Metatrader (MT4 and MT5), and cTrader. Some brokers have proprietary trading platforms, which have become more popular recently because it is easily customizable. Check the platform options when choosing a Dow Jones broker to ensure it meets your needs and is user-friendly.
Fees & Commission
The spread is the most common fee a broker will charge you for using its services. However, there are other fees and commissions that these brokers will charge you. Some of them are:
- Overnight fees: These fees are charged by brokers for holding a position overnight.
- Deposit and Withdrawal fees: Some brokers will charge you a percentage on your deposits and withdrawals.
- Inactivity fees: You will be charged this fee for leaving your account dormant for an extended period of time, usually 6 months or more.
Reputation
Checking a broker’s reputation on social networks like Reddit, Quora, ForexPeaceArmy, and TrustPilot is a good way to know about their services. Positive or negative reviews can help you decide if the broker is right for you.
Customer Support
If you’re new to trading the Dow Jones Index, find a broker with good customer support. A broker with good support has multiple contact methods, a fast response team, and comprehensive FAQs on the website. It can be confusing to trade with a new broker, so having reliable customer support can help guide you through any issues you might encounter.
Payment Methods
Choose brokers with diverse payment methods like credit/debit cards, wire transfer, digital wallets, and local currency for convenience.
Pros and Cons of Brokers to Trade Dow Jones
Pros
- Well-Regulated
- Ease of Trading
- Access to Educational Resources and Materials for Trading
- Low Spreads
- Multiple Trading Platforms
- Resources like News, Charts, for Technical and Fundamental Analysis
- Low Cost of Trading
- Data Protection and Security
- Access to Demo Accounts for Trading Practice
- Access to Bigger Market Exposure via Leverages
Cons
- Losses due to Leverage
- Loss of Funds and Personal Information to Unregulated Brokers
- Hidden Fees and Charges
Trading Platforms Available on Dow Jones Brokers
Brokers use trading platforms as an interface between the trader and the market. There are different types of trading platforms available today, including proprietary platforms. However, there are only two general classes based on the device used for trading. These classes are desktop and mobile platforms.
Desktop Trading Platforms
Just as the name implies, desktop trading platforms are Dow Jones platforms available on desktop or laptop computers. Desktop platforms exist for all examples of trading platforms, and can be installed on Windows and iOS operating systems for use.
Dow Jones brokers with proprietary software offer desktop trading versions, which are easier to use and more customizable than MT4, MT5, and cTrader. A good example of brokers that offer proprietary trading software for desktop platforms is eToro.
To use desktop platforms, you need to open an account with the broker and install the platform on your computer for use. This way, you can choose between trading Dow Jones on MT4, MT5, or other Dow Jones Platforms available.
Mobile App
Dow Jones Trading brokers offer mobile trading apps for Android and iOS devices, great for trading on the go. These apps provide real-time news and live notifications, ensuring you never miss a trade opportunity.
Like desktop platforms, mobile apps are designed to be downloaded and installed on your mobile device for use. You can download mobile trading apps on your Google Play Store and Apple Store for android and iOS devices respectively. You can find proprietary platforms for mobile trading apps, so you can use them on your mobile device.
eToro offers its proprietary trading platform on mobile apps, so you can download the app and use the platform on your mobile device. Commonly-used platforms like MT4, MT5, and cTrader are also available on mobile apps, so you can download them and use them too.
Fees to Consider when Trading and Investing in Dow Jones
Look out for fees when selecting Dow Jones brokers. Brokers charge through commissions or spreads, so it’s important to know the fees. Some common fees are:
Spreads
A spread is the difference between the buying and selling price of an asset. Brokers often markup the price to make a profit, resulting in a spread. Some Dow Jones trading brokers offer tight spreads, as low as 0.0 or 0.1 pips, to attract investors. Tighter spreads mean lower costs when buying and selling indices. Check a broker’s Dow Jones spreads before trading to ensure they are affordable.
Commissions
Some brokers do not add any markup to their bid or ask prices. They offer their traders direct access to market prices, so traders don’t have to pay for spreads. However, they charge a commission for trades they help the trader to complete.
These commissions vary from broker to broker, so there is no single rate. Check the broker you wish to trade with and confirm that you can pay for the commission before you start trading with them. For example, eToro and Capital.com are zero-commission brokers, meaning they don’t charge you commissions when you trade the Dow Jones index.
Roll-over Fees
Roll-over/swap/overnight fees are charged by some Dow Jones brokers when a position is held overnight. Try to find brokers with lower swap fees.
Are CFD Brokers Offering Dow Jones Safe?
Regulated Dow Jones trading brokers take safety precautions for investors’ funds and personal information, which are required by regulatory bodies. These safety precautions include:
Insurance
Regulated brokers are required to keep a certain amount of client funds in segregated accounts, separate from their own operational funds. This provides protection to traders in case the broker goes bankrupt or mismanages their funds. It also ensures that client funds are not used for the broker’s business expenses.
Technology
Due to the rise of hacking and identity theft in recent times, brokers have improved their technology to better safeguard investors’ private information and funds. Brokers use a 2FA (two-factor authentication) on their website and mobile apps, along with Secure Sockets Layer (SSL) to establish an encrypted link between the server and the user. These systems also help investors recover their account in case they lose their device or forget their passwords.
Negative Balance Protection
CFD brokers offering Dow Jones use Negative Balance Protection to prevent traders from losing more money than the amount deposited in their trading account. This system acts like a stop loss, limiting losses on a trade and preventing traders from going into debt.
Even the best, well-regulated, brokers suffer hacks and other security incidents from time to time, however, with security precautions like the ones mentioned above, Dow Jones brokers can minimize the losses investors will face.
What Reddit & Quora Say About Brokers to Trade Dow Jones
We went through Reddit & Quora, two of the biggest social communities on the internet, to see what people thought about brokers for trading the Dow Jones Index.
Reddit
We went through many threads on Reddit to see what the users thought about brokers to trade the Dow Jones Index.
One Redditor praised Trading 212 for enabling trading of many lots but had concerns about the broker’s stability and sought a better alternative as they were unsure when the broker would shut down, indicating underlying issues.
Two different redditors recommended Degiro for cheap index funds and ETF trading due to low spreads and commissions. However, one noted that it lacks fractional shares, which is important for trading blue chip stocks with small amounts of money.
Quora
We found a thread of a Quora user asking others for the best brokers for trading the Dow Jones or US 30 index with a minimum spread of 1 pip. One Quora user responded saying that IFC Markets was a good broker to try out if the first user was looking for a broker with fixed spread. He mentioned that the spread was not as small as many would like, but it was fixed and didn’t move with trends or news.
Another Quora user answered the question by directing the first user to another website where he/she could get more information about different brokers he/she could use for trading the Dow Jones Industrial Average. The website had information on the minimum deposits, spreads, leverage, regulation, and other important factors to consider when selecting a broker to trade Dow Jones with.
On another thread, we found a detailed answer to the question: How do I invest in the Dow Jones Industrial Average if I’m not a citizen and I live outside the United States? A Quora user said he thought TD Ameritrade was the best broker for non-US citizens looking to invest in DJI. He also explained that the Dow Jones had some tracker ETFs, which might be a great option if they are commission free, as opposed to buying Dow Jones member stocks. Finally, he talked about tax considerations every foreign investor should look into before trading with any Dow Jones broker.
Bottom Line
The Dow Jones Index (DJI) is a renowned index consisting of 30 blue-chip stocks from the New York Stock Exchange and NASDAQ, making it a crucial benchmark for investors to monitor the US stock market. Trading the Dow Jones involves utilizing various methods such as trading it with leverages using CFDs, investing through ETFs or specific stocks.
It is vital to find reliable Dow Jones brokers to ensure a smooth trading experience. Before selecting a broker, compare different factors like proper regulation, tight spreads, leverages, low fees, good customer support, a wide range of payment methods, and a great reputation. It is also crucial to check the types of trading platforms brokers offer, with most offering commonly-used trading platforms like MT4, MT5, and cTrader. Consider if these trading platforms are available on mobile and desktop devices for convenience. To ensure safety, take note of a broker’s safety measures and precautions to protect investors from losing their funds and private information. Brokers must follow regulatory safety precautions at all times, such as providing negative balance protection to investors, technological security, and excellent insurance.
In conclusion, trading the Dow Jones is an excellent way to invest in the US stock market, but finding a reliable broker is crucial to maximize your profits while minimizing risks. Always compare different factors, including safety measures, to find the best Dow Jones broker for you.
Q & A
The Dow Jones Industrial Average, simply referred to as the Dow or DJIA, is an index containing 30 blue chip stocks trading on the New York Stock Exchange and NASDAQ.
The Dow Jones opens at 9:00 am and closes at 4:30 pm Eastern Time every Monday to Friday.
The Dow Jones is calculated by adding the stock prices of all 30 stocks and dividing the result by the divisor. The divisor is a numerical value used to calculate the value of the DJIA.
There are 30 companies from nine (9) different sectors (Financial, Consumer goods, health, etc.) in the Dow Jones Index.
The Dow Jones all-time high was $36,799.65 at market close on Jan. 4, 2022.
Some brokers with the tightest spreads on the Dow Jones Index are: eToro, XTB, CMC Markets, IG, and interactive brokers.
Some of the best brokers to trade Dow Jones are: Pepperstone, CMC Markets, Interactive Brokers, and FP Markets.
Yes, you can trade Dow Jones in the futures market.
Many Dow Jones brokers are regulated by regulatory bodies in the regions they operate. Regulatory bodies like the SEC, FCA, ASIC, etc. all regulate brokers offering the Dow Jones Index.
For most people, the best way to invest in the Dow is by buying a low-cost mutual fund or ETF that tracks the Dow Jones Index.
The best time to trade Dow Jones is between 9:30 a.m. to 10:30 a.m. Eastern time (ET). At 11:30am, most professional traders will stop trading.
Some brokers with high leverage for trading the Dow Jones Index are: IG (up to 1:20), XTB (up to 1:20, up to 1:100 for clients outside UK/Europe), and eToro (up to 1:20 for clients in Europe, UK and Australia and up to 1:100 for clients in Seychelles).
Beginners can trade the Dow Jones Index after doing their research, practice, and with the right mentorship.
The total market cap of the Dow Jones Index is $10.35 trillion as of June 3rd, 2022.
Yes, the Dow Jones is composed only of 30 blue-chip US-based companies.