This page covers some of the most traded stock indices worldwide, such as the S&P 500, DJIA, NASDAQ 100, FTSE 100, the DAX 40 and more. Keep reading to view live stock index prices and stock market news, and to learn about stock indices in trading, including how they are calculated and what moves stock index prices.
WHAT ARE STOCK INDICES?
When you see a wide-eyed news presenter state that ‘the market
has hit all-time highs!’ they are referring to an index. In the
US, major stock indices include the S&P 500 and the DJIA (Dow
Jones Industrial Average) and in the UK it’s the FTSE 100.
A stock market index is a section of stocks in a market. It is used by traders and economists to compare returns on different assets, to track the overall economy or as an investment vehicle. Among the most common types of indexes include global indices, regional indices and national indices.
Stock market indices represent the value of a group of underlying publicly-traded companies. A stock market index tracks a collection of stocks to gauge a market’s overall performance.
WHY TRADE INDICES?
Stock market indices are traded in large volumes and are very
popular in the investing community. They are not only a great
place to start for beginners but are also traded by experienced
professionals daily. Indices are great for day-traders and
long-term traders alike.
Here’s some of the benefits of trading the major indices:
- They are highly liquid, which gives traders tight spreads and clear chart patterns.
- They provide volatility. Indices represent the health of the economy they track, changes in the economy can cause the indexes volatility to increase which leads to great trading opportunities.
- Indices allow traders to bet on the price of the index going up and down. This leads to more opportunities as traders can capture the upside and downside of a movement.
- There are different indices for different industries and sectors, so traders can gain exposure indices that match their preferences. If a trader wants to capture gains in technology, he/she can trade the US Tech 100.
HOW ARE STOCK INDICES CALCULATED?
It is important for a stock market to be transparent. Transparent in what stocks are included in the index and how the index is calculated. Transparent indices are easier for ETF’s to track because they help ETF managers allocate the right weights to the different stocks in the ETF.
There are many ways to calculate the value of a stock index, but the most popular methods are:
The Market Capitalization Weighted Method
whereby the stocks in the index are weighted using the market capitalization of the individual companies. The largest company in the index by market cap will generally lead to the most movement in the index. The S&P 500 is an example of a market capitalization weighted index.
The Price Weighted Method
whereby the stocks in the index are weighted by the price of the stock. This can lead to companies with smaller market capitalizations but higher stock prices having a bigger effect on the overall index. The DJIA is an index weighted using the price-weighted method.
The Equal Weighted Method
whereby the return of each stock in the index is calculated and then summed and divided by the amount of stocks in the index.
The Fundamental Weighted Method
whereby the index is constructed using fundamental aspects like price to earnings ratios, earnings, book values and others. Most indices are calculated using the market capitalization weighted method.
WHAT MOVES INDICES MARKETS?
An index moves as its constituents move whether they be market
caps, fundamentals, or just the prices of the stocks. The method
used to calculate the index can also lead to different results.
Indices rates are influenced by a few things, mainly:
- The index constituents. The companies that make up an index will affect its price. The largest contributors to the index should be always be monitored as they will move the index the most.
- Economic Data. If, for example, the index is based mostly on US stocks like the S&P 500 then economic data on the US economy will most likely affect the price of the index. The data that investors will look at include inflation, unemployment, inventory levels and treasury yields. amongst others. All this economic data can be found on our Economic Calendar.
- Politics.Trade wars and regulation can have adverse effects on indices. Generally, indices will benefit from talk of free trade, talk of de-regulation and lower taxes.