This week we look at trading the Dow Jones - Dominic Picarda looks at the index on the other side of the pond and the trading opportunities this provides.
Trading the Dow Jones
If you want to speculate on the outlook for the US economy, trading the Dow is a great way to do it. The Dow Jones Industrial Average is one of the best known stock market indices in the world. It tracks the prices of thirty of America's most important companies including such global champions as Coca Cola, Microsoft and McDonalds.
As with all stock-market indices, a handful of the most influential companies can sway the performance of the entire index. The most important Dow members aren't necessarily its biggest companies, but those with the highest stock prices. So, a company with a price of $100 would have ten times as much weight as one with a price of $10.
The Dow's actual trading hours are between 9.30am and 4pm New York time. This is when most of the action and the most competitive price quotes are likely to occur. With Tradefair Spreads, however, you can trade the Dow from 7am until 9.15pm, London time and overnight.
Big price-movements are often seen in the first hour of the official stock-exchange opening. That's because investors are still digesting big news stories that have broken overnight and on the day. Also, not all Dow stocks always start trading simultaneously. So, early prices aren't necessarily the best indication of the day's trend.
On Tradefair Spreads' platform, the Dow Jones index is referred to as 'Wall Street.' If you're doing a trade for a few hours or days, a "rolling daily" spread bet may work out cheapest. For trades lasting more than a month, a "futures" style bet may offer better value.
If you want to get an idea of trading patterns, you could study past price behaviour. You can download complete daily price and volume information for the Dow Jones going right back to 1928 from Yahoo finance absolutely free: http://finance.yahoo.com/q/hp?s=%5EDJI.
Until next week, happy trading
The Tradefair Spreads Team
The above comments do not constitute investment advice and neither Tradefair Spreads nor Clean Financial accept any responsibility for any use that may be made of them.
Risk Warning:
Spread bets carry a high level of risk so you should only speculate with money you can afford to lose. You can lose more than your initial deposit and stake. Before you open an account, please ensure that spread betting matches your investment objectives, familiarise yourself with the risks involved and if necessary seek independent advice.
Article provided / approved by Tradefair Spreads which is a trading name of London Capital Group Ltd which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 182110.
Tradefair® is part of the Betfair Group.
'Trading the Dow' edited by DB, updated 27-May-09
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Risk Warning:
Please note that spread betting and CFD trading carry a high level of risk to your capital. You can lose more than your initial deposit. These products may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
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