Your guide to trading the S&P 500 index

Why is the S&P 500 important to traders?

The S&P 500, also known as Standard & Poor’s 500, is a stock market index that tracks the stock price performance of the top 500 companies in the US.

As the assets of the index comprise an approximate total of $2.2 trillion, the S&P 500 index – along with the Dow Jones Industrial Average (DJIA) – is often used as a gauge for the performance and strength of the US economy.

S&P 500 trading hours

As S&P 500 companies trade on the NASDAQ and New York Stock Exchange, traders like to trade the S&P 500 index during main market hours between 09:30 and 16:30 EST. Trading during these hours often offers greater liquidity and tighter spreads.

However, you can trade the S&P 500 24 hours a day with Capital.com and monitor price changes and S&P 500 historical data using our S&P 500 live chart.

How to trade the S&P 500 CFD

The S&P 500 price typically provides traders with a high degree of liquidity, long trading hours and tight trading spreads. You can trade the S&P 500 index today using CFDs (contracts for difference). Using CFDs to trade S&P 500 will allow you to go long or short without having to deal with conventional exchanges.

Traders enjoy trading the S&P 500 because trends can often be spotted on live charts, with clear entry and exit signals using both simple and comprehensive indicators.

Trade USA 500 - US500 CFD

Since the index tracks a ‘basket’ of 500 US companies, traders who trade S&P 500 are given a diversified exposure to a US stock market – one that is widely covered by analysts who conduct in-depth technical and fundamental research of its performance. As such, the S&P 500 is found to be popular with CFD traders around the world.

As with any form of trading, a good trading strategy is imperative to invest in S&P 500. An effective trading strategy could be one that dampens market noise and enables traders to remain attuned to their entry and exit signals, volume and risk. A good trading strategy often combines technical and fundamental analysis, with sound emotional control.

How is the S&P 500 calculated?

Companies who trade on the S&P 500 index are selected by a committee that assesses the company’s merit according to eight primary criteria. These are:

• Market capitalisation
• Liquidity
• Domicile
• Public float
• Sector classification
• Financial viability
• Length of time publicly traded on a stock exchange

In addition, any one company must satisfy the following liquidity-based size requirements:

1. A market capitalisation greater than or equal to $6.1 billion
2. Annual dollar value traded to float-adjusted market capitalisation is greater than 1.0
3. Minimum monthly trading volume of 250,000 shares for each of the six months leading up to the evaluation date

S&P 500 companies are selected to be representative of the industries in the US economy (e.g. technology, health, industrial, commodities).

The S&P 500 is capitalisation-weighted, which means that companies with bigger market caps will have a bigger influence on the S&P 500 price.

Like the Dow Jones Industrial Average, the value of the S&P 500 index is calculated through the sum of the market capitalisation of all 500 stocks being divided by the Divisor, where the Divisor is considered to be approximately 8.9 billion. The Divisor is adjusted in the event of stock splits or mergers to ensure that the numerical value of the index is unaffected.

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Why trade S&P 500 CFD with Capital.com

Advanced AI technology at its core: A Facebook-like news feed provides users with personalised and unique content depending on their preferences. If a trader makes decisions based on biases, the innovative SmartFeed offers a range of materials to put him back on the right track. The neural network analyses in-app behaviour and recommends videos and articles to help polish your investment strategy. This hopefully helps you refine your approach when you trade S&P 500.

Trading on margin: Providing trading on margin (20:1 for major indices), Capital.com gives you access to the S&P 500 index with the help of CFDs.

Trading the difference: By trading CFDs on the S&P 500 index, you don’t buy the underlying asset itself, meaning you are not tied to it. You only speculate on the rise or fall of its share price. CFD trading is no different from traditional trading in terms of its associated strategies. A CFD investor can go short or long, set stop and limit losses and apply trading scenarios that align with his or her objectives. So whether your view is positive or negative, you can trade S&P 500 in both directions.

All-round trading analysis: The browser-based platform allows traders to shape their own market analysis and forecasts with sleek technical indicators. Capital.com provides live market updates and various chart formats, available on desktop, iOS, and Android.

Focus on safety: Capital.com puts a special emphasis on safety. Licensed by CySEC, it complies with all regulations and ensures that its clients’ data security comes first. We allow you to withdraw money 24/7 and stores traders’ funds across segregated bank accounts.

Businesses in the S&P 500

If you trade the S&P 500, you will notice that it comprises companies from a wide range of different sectors, including technology, commodities, health and manufacturing. Apple, the world’s first trillion dollar company by market capitalisation, is included in the S&P 500 index.

History of the S&P 500 Index

In 1923, the Standard Statistics Co. created its first stock market index, which consisted of stocks of 233 US companies. In 1926, the firm developed a 90-stock index that was computed on a daily basis.

In 1941, the Standard Statistics Co. merged with Poor's Publishing to form Standard & Poor's, a financial information and analysis firm. On March 4, 1957, the index was expanded from 90 to its current 500 constituents and was renamed the S&P 500.

The index’s collection of stocks intended to represent the overall composition of the US economy. Today, it is often used as a general measure of the health of the US stock market.

Since its inception, the S&P Index has performed rather well, outpacing other major asset classes, such as commodities and bonds.

In 1957, the S&P 500 was introduced with a starting index value of 386.36. During its first decade, against the background of the economic boom that followed World War II, it’s value appreciated past 700 points. However, when the US economy suffered from stagnant growth and high inflation in 1969 – the first half of 1982, the index declined gradually, eventually falling below 300 points.

Later in 1982, the bulls took over, and the market entered an uptrend that lasted until 2000. During this period, the S&P 500 gained 1,350 per cent. Some of the factors that contributed to this hike were technological innovations, lower interest rates, robust global economic growth and a stable political environment.

In 2000, the stock market saw a culmination of the infamous dot-com bubble. On March 24, the index reached an intraday high of 1,552.87. However, once the bubble burst, the S&P 500 shed over 40 per cent.

The index then started to recover slowly, driven by growth in the commodity and financial sector stocks, as well as housing, with its value eventually hitting 1,530.23 points on May 30, 2007. On October 11, the S&P 500 posted another intraday high of 1,576.09, right after a record close of 1,565.15 two days earlier.

However, following a subsequent steep decline in housing prices, many of these gains were reversed. With widespread debt defaults creating an environment of growing market fear, the index ended 2007 at 1,468.36, right before falling to 1,400 in less than a month. All in all, during the Great Recession, the S&P 500 lost 57.7 per cent from its October 2007 highs, bottoming out in March 2009 when it closed at 676.53.

The situation in the stock market then started to improve, with the S&P 500 ending 2009 at 1,115.10, marking its second-best year of the decade. The index fully recovered its crisis-related losses by March 28, 2013, after surpassing its closing high level of 1,565.15.

Over the following years, until February 2020, the S&P 500 had mainly been in an uptrend, with the exception of occasional, short-lived negative fluctuations. The index peaked at 3,386.15 on February 19, 2020, right before the Covid-19 outbreak brought global economic growth to a halt. When coronavirus-related lockdowns tanked activity across the world, the S&P 500 has experienced some dramatic price movements.

On March 12, 2020, it suffered its worst daily decline since 1987's Black Monday, losing 9.5 per cent. The value of the index fell as low as 2,208 points on March 23.

However, due to unprecedented Federal Reserve aid, better-than-expected economic data and optimism for a prompt rebound, the index surged to 3,233.3 on June 8, erasing its year-to-date losses.

Join Capital.com to stay on top of the latest S&P 500 price developments and spot the best trading opportunities.

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