Did you know that there are more than 100,000 publicly traded companies in the world? Opportunities for investment abound. However, life is not all rainbows and unicorns, and the truth is, we know almost nothing about the majority of these companies. Does it mean we should trade only those which sound familiar? Absolutely not. Instead, we have indices.
What are stock market indices?
A stock market index is a barometer, measuring the health and condition of a group of shares. It helps to define the state of a particular market and allows us to track its performance. As opposed to an individual stock, indices provide a general and balanced view on the stock market and the economic environment a whole.
What are the major types of stock market indices?
Serving as a benchmark of a stock market’s performance in a particular country, region or even sector, indices could be classified as follows:
Global stock market indices combine stocks from various geographical regions and business types. For example, the MSCI World Index tracks the performance of mid and large-cap shares from 23 developed countries and covers almost 85% of the free float-adjusted market capitalisation in every country. Alongside with the MSCI, the key global stock market indices include S&P Global 100, FTSE All-World index and Russell Global index.
Regional stock market indices measure stocks from particular regions around the world. For example, they might be European, Latin American, Asian equities. This type of indices enables investors to track and compare the performance of certain countries to a broader region and find out which assets are under and over-performing. The examples of popular regional indices are S&P Asia 50 index, FTSE Euro 100 index and S&P Latin America 40 index.
National stock market indices give exposure to specific countries. Sometimes, these indices consist mainly of large-cap stocks, as the world’s famous Dow Jones Industrial Average. In other cases, especially when we’re talking about the emerging markets, the stocks might be considered small-cap, since the country might yet to witness the emergence of a large-cap company. The world’s 9 most-traded national stock market indices include:
What are the world’s major indices by market capitalisation?
The US stock market is the world’s leading and most influential marketplace for trading. Founded in 1792, the New York Stock Exchange (NYSE) is the world’s largest stock exchange with a market cap of over $16 trillion US dollars and a daily trading value of about $169 billion.
You might notice that the US market is home to some of the world’s most prominent stock market indices, including the Dow Jones Industrial Average (DJIA), Standard & Poor’s 500 index and the NASDAQ Composite Index.
What are the world’s major indices by listed stocks?
The smallest by the number of stocks, but one of the most important and followed stock market indices globally, the Dow Jones Industrial Average (DJIA) comprises 30 significant stocks, traded on the NYSE and the NASDAQ.
The S&P 500 tracks the performance of 500 large corporations, publicly traded on the NASDAQ and NYSE. Standard & Poor’s 500 constituents are selected to represent the major industries in the US economy.
The NASDAQ Composite is a capitalisation-weighted index, including 3,000 common stocks listed and traded on the NASDAQ Stock Exchange. It includes several companies that are based outside the United States.
What are the world’s major indices by date of calculation?
The Dow Jones Industrial Average was created in 1885 by journalist Charles Dow. Originally, the index was comprised of 12 constituents, including behemoth General Electric (which is still a member of the Dow).
The S&P 500 was first introduced in 1923 with a small number of stocks. By 1957, the index expanded to 500 constituents.
The NASDAQ Composite was launched in 1971. The index’s all-time high happened on 29 August 2018, when the price reached 8,109.
What are the key factors that influence Indices price movement?
How to invest in indices
We used to keep a close eye on the S&P 500 or Dow Jones heading up or falling down every single day. It gives us a hint about the market’s environment and potential investment opportunities. So how do you use indices for your own benefit? Trade them with CFDs.
One of the simplest and most easily available means of trading the world’s major stock market indices is through contracts for difference. CFDs provide you with the opportunity to speculate on the index price movements, predicting whether it will go upwards or downwards. A good thing is you don’t have to buy the asset itself. CFDs are flexible instruments, giving you a chance to profit from a bearish market. Applied leverage opens up a broader access to the world’s top indices at a relatively low-cost entry price – but also means any potential losses can be magnified.
Trading indices can diversify your investment portfolio and work as a perfect hedging tool for your individual stock investments. However, please note that indices are made up of an extensive number of stocks, whose price always moves. It makes indices subject to extensive volatility, which may pose additional risks. Always keep your eyes wide open and attuned to the next best opportunity.