To learn the basics of trading indices, and CFDs on indices in particular, first we should get a clearer idea of what they really are. Generally, an index is usually referred to as a portfolio of stocks of different companies that represent a certain market or its sector.
What are indices?
Watch a short video to get the gist of indices.
The majority of highly developed, as well as developing economies, have at least one financial index. For example, the S&P 500 index includes the stocks of 500 of the most widely-traded American companies, comprising 70% of the overall financial value of the US stock market. It provides a good view on the state of the American stock market as a whole.
How are stock indices calculated?
An index’s value is usually represented by a number of points. Every index is calculated a bit differently, but in general, its common value is represented by a weighted average of the current values of the constituent stocks.
Therefore, an index’s value changes according to the fluctuations in value of its underlying individual stocks. Analysts and investors see indices as a benchmark of the market’s performance in every country.
What are the current leading indices?
Various indices have a certain focus on particular market sectors and stocks. For example, the Dow Jones Industrial Average (one of the world’s most popular indices) consists of the stocks of 30 key players in specific industries.
Some of the most widely-traded indices include: the S&P 500 and Dow Jones (New York), the FTSE 100 (London), the DAX30 (Frankfurt), the Hang Seng (Hong Kong), the Nikkei 225 (Tokyo) and the Shanghai Composite.