What's the difference between the Dow Jones Industrial ...



Stock Exchange BasicsIncorporated businesses sell shares of stock to investors to raise capital. Public stock exchanges provided a marketplace for the original purchasers of stock to sell their shares to other investors, and for investors to trade shares among themselves. Independent stock exchanges operate all over the world; the NYSE, AMEX and NASDAQ are the three stock exchanges located in the United States, but they are only a few options in the global world of securities trading.New York Stock Exchange (NYSE)The NYSE is the largest American stock exchange by volume. Combined with Europe's Deutsche Boerse and Euronext exchanges, NYSE lists companies from around the world. Unlike NASDAQ, NYSE features a physical trading floor where registered traders conduct transactions in person on behalf of large institutions and high-value investors. The proliferation of electronic communications networks continues to shift NYSE's focus away from floor trading toward Internet-based trading platforms.American Stock Exchange (AMEX)The AMEX is a smaller exchange than NYSE, and it has always been favored by smaller companies which cannot meet NYSE's strict listing and reporting requirements. The NYSE acquired AMEX in 2008, allowing investors to buy AMEX stocks alongside companies on the larger NYSE. Exchange-traded funds, mutual funds which are traded alongside stocks on open exchanges, originated on AMEX before gaining popularity around the world.National Association of Securities Dealers (NASDAQ)NASDAQUnlike the other American exchanges, NASDAQ does not operate with a physical trading floor. NASDAQ trades take place solely online, increasing the exchange's cost efficiency and providing equal access to individual and institutional traders around the world. NASDAQ is traditionally heavy with technology stocks, since the exchange was friendly to tech startups in the early days, when most technology companies could not meet NYSE requirements. The loyalty of companies like Baidu, First Solar and Apple have pushed the NASDAQ's valuations sky-high, allowing it to take a place alongside NYSE as a major player in U.S. trading.Read more:?The Difference Between AMEX, NYSE, & NASDAQ | ?'s the difference between the Dow Jones Industrial Average and the S&P 500?The major difference between these two?indexes?is that the?Dow Jones Industrial Average?(DJIA) includes a price-weighted average of 30 stocks whereas the?Standard & Poor's 500?(S&P 500) is a market value-weighted index of 500 stocks. The editors of the?Wall Street Journal, which is owned by Dow Jones & Co, pick the stocks comprising the DJIA, while an S&P committee picks the 500 stocks in the S&P 500. (See?Calculating The Dow Jones Industrial Average.)?The Dow is comprised of 30 of the largest companies in the U.S. across a range of industries except for transport and utilities. The criteria for a company to get on the Dow is vague; the companies are?leaders?in their industry and very large. The components in the DJIA do not change often as it takes an important change in a company for it to be removed from the index, and if the index comes up for review, the?Wall Street Journal?editors often replace more than one company at a time.The S&P 500 is comprised of 500 large companies from a vast number of industries, picked based on the following criteria:?1.?Market capitalization?of more than $5 billion?2. Four consecutive?quarters?of profit determined by?net income?less discontinued operations and?extraordinary items?3. Adequate?liquidity?measured by price and volume (annual dollar value traded to?market cap?should be at least 0.3)?4. Public?float?of at least 50%?The S&P 500 strives to represent all of the stocks over $5 billion by making sure the index closely matches the sector weighting that is seen in all stocks above $5 billion. For example if 20% of stocks with a market cap of over $5 billion are?technology?companies, the S&P 500 would try and have a technology?weighting?of around 20%. The S&P 500 will only include companies it determines to be operating, excluding such things as?closed-end funds,?holding companies,?partnership?and?royalty trusts.?Both of these measurements are used by investors to determine the general trend of the U.S.?stock market. However, the S&P 500 is more encompassing as it includes a greater sample of total U.S. stocks and because the S&P 500 is market-value weighted, it attempts to ensure that a 10% change in a $20 stock will affect the index like a 10% change in a $50 stock. The DJIA, on the other hand, is price-weighted, which means the average is affected considerably more by the large stocks within its portfolio.?To recap:?DJIA:?1. 30 North American stocks picked by the?Wall Street Journal?2. Calculated through a method of simple mathematical averages?3. Higher-priced stocks affect the average more than lower-priced ones.?S&P 500:?1. 500 North American stocks picked by an S&P board?2. A wider range of sector representation?3. Calculated by giving weights to each stock according to their market value?4. Regardless of?stock price, a percentage change will be reflected the same on the index.Read more:? JonesThe most famous?stock?market?barometer is the Dow Jones Industrial Average (DJIA). When someone asks how the market is doing, most investors quote the DJIA (simply referred to as “the Dow”). The Dow is price weighted and tracks a basket of 30 of the largest and most influential public companies in the stock market.If you read the newspaper, listen to the radio, or watch the nightly news on television, you'll probably hear about what happened to "the market" today. It's all fine and good that the Dow Jones finished up 35 points to close at 8738, but what does that mean?The Dow Jones Industrial Average (DJI), commonly just referred to as "The Dow", is an average of the price of 30 stocks. The stocks represent 30 of the largest and most widely traded stocks in the United States. The Dow Jones Corporation, the administrators of the index, changes the stocks in the index from time to time. On November 22, 2002, the following 30 stocks were components of the index:3M, Alcoa, American Express, AT&T, Boeing, Caterpillar, Citigroup, Coca-Cola, E.I. DuPont de Nemours, Eastman Kodak, Exxon Mobil, General Electric, General Motors, Hewlett-Packard, Home Depot, Honeywell, Intel, IBM, International Paper, J.P. Morgan Chase, Johnson & Johnson, McDonald's, Merck & Co., Microsoft, Philip Morris, Procter & Gamble, SBC Communications, United Technologies, Wal-Mart, and Walt Disney.The Dow Jones Industrial Average is computed by taking the average price of the 30 stocks and dividing that figure by a number called the divisor. The divisor is there to take into account stock splits and mergers. Otherwise the index would decrease whenever a stock split took place. Suppose a stock on the index worth $100 splits is split or divided into two stocks each worth $50. If we did not take into account that there are twice as many shares in that company as before the DJI would be $50 lower than before the stock split because one share is now worth $50 instead of $100.Definition of 'Standard & Poor's 500 Index - S&P 500'An index of 500?stocks?chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.?Companies included in the index are selected by the S&P Index Committee, a team of analysts and economists at Standard?& Poor's.?The S&P 500?is a?market value?weighted index - each stock's weight is proportionate to its market value.Investopedia explains 'Standard & Poor's 500 Index - S&P 500'The S&P 500 is one of the most commonly used benchmarks?for the overall U.S.?stock market. The Dow Jones Industrial Average (DJIA) was at one time the most renowned index for U.S. stocks, but because the DJIA contains only 30 companies, most people agree that the S&P 500 is a better representation of the U.S. market. In fact,?many consider?it to be?the?definition of the market.Read more:? order?is an order that sets the maximum or minimum at which you are willing to buy or sell a particular stock. For instance, if you want to?buy stock?ABC, which is trading at $12, you can set a limit order for $10. This guarantees that you will pay no more than $10 to buy this stock. Once the stock reaches $10 or less, you will automatically buy a predetermined amount of shares. On the other hand, if you own stock ABC and it is trading at $12, you could place a limit order to sell it at $15. This guarantees that the stock will be sold at $15 or more.?The primary advantage of a?limit order?is that it guarantees that the trade will be made at a particular price; however, your brokerage will probably charge a higher a?commission?for the limit order, and it's possible that your order will not be executed at all if the limit price is not reached.Read more:? a stop order, your trade will be executed only when the security you want to buy or sell reaches a particular price (the stop price). Once the?stock?has reached this price, a stop order essentially becomes a?market order?and is filled. For instance, if you own stock ABC, which currently trades at $20, and you place a stop order to sell it at $15, your order will only be filled once stock ABC drops below $15. Also known as a "stop-loss order", this allows you to limit your losses. However, this type of order can also be used to guarantee profits. For example, assume that you bought stock XYZ at $10 per share and now the stock is trading at $20 per share. Placing a stop order at $15 will guarantee profits of approximately $5 per share, depending on how quickly the?market order?can be filled.?Stop orders are particularly advantageous to investors who are unable to monitor their stocks for a period of time, and brokerages may even set these stop orders for no charge.One disadvantage of the stop order is that the order is not guaranteed to be filled at the preferred price the investor states. Once the stop order has been triggered, it turns into a market order, which is filled at the best possible price. This price may be lower than the price specified by the stop order. Moreover, investors must be conscientious about where they set a stop order. It may be unfavorable if it is activated by a short-term fluctuation in the stock's price. For example, if stock ABC is relatively?volatile?and fluctuates by 15% on a weekly basis, a stop loss set at 10% below the current price may result in the order being triggered at an inopportune or premature time.Read more:? ................
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