The Washington Independent
The Washington Independent
The world's most important stock indices and how to trade on them

The world's most important stock indices and how to trade on them

06/04/2021 07:37
finance
Katya Ryder

Table of Contents

What Are Stock Indices and How Do They Work?How do people trade them?Which are the most important?

Trading is increasing in popularity and more people are showing interest in the stock, forex, and commodities markets. A growing number are keen to invest in foreign markets and indices. This is large because this form of trading offers an interesting opportunity to trade on a group of assets rather than just individual ones.

What Are Stock Indices and How Do They Work?

A stock index, otherwise known as an index, measures a certain market or a section of it based on the combined value of the companies included in it. It also allows the tracking of a group of assets so traders can measure their performance. Stocks or assets can be grouped according to location, sector, type, industry, or another kind of factor. For example, there are indices for technology, commodities, and for certain countries. They are often used to assess how a certain economy or sector is performing when compared with other economic indicators or indices from other regions.

How do people trade them?

Indices can be traded in the same way as a singular asset such as a stock, commodity, or currency. The trader chooses the indices they wish to speculate on and opens a trade on a certain position. However, other ways of trading indices have become more popular, such as CFDs and binary options. With CFDs, the trader speculates how much the value of the index will change over a certain period of time. In the case of binary options, the trader picks an outcome, and they either will or will not make a profit. As faster-paced options, both of these forms of trading are commonly used with indices and are particularly popular for traders looking for short-term trading options.

Which are the most important?

Which Are the Most Important

There are a large number of indices across the world, all catering to different markets and preferences, while some are more important than others. Below, we run through some of the main ones.

Wall Street 30

The Wall Street 30 is an index that tracks the individual and combined performance of 30 of the USA’s biggest and most profitable public companies. It’s one of the oldest in the country and includes companies like American Express, Caterpillar, IBM, Dow, Walgreens Boots Alliance, and 3M.

USA 500

As the name suggests, the US 500, otherwise known as the Standard & Poor’s 500 Index, is a group of 500 large US companies. It’s categorized as a market-capitalization-weighted index which refers to the fact that capitalizations change depending on how many shares are publicly traded or are available for public trading. Big names include Apple, Amazon, Facebook, Johnson & Johnson, and Microsoft. 

China A50

Created by FTSE, the China A50 Index includes companies from the Shanghai Stock Exchange and the Shenzhen Stock Exchange. It features some of the largest and most valuable Chinese companies such as banks, railways, communications companies, and insurers.

Nikkei 225

The Nikkei 225 is an index of companies from the Tokyo Stock Exchange. In existence since 1950, it includes 225 publicly traded companies from a range of different sectors. Companies include Japan Tobacco, Nippon Paper Group, Fujifilm Holdings, Shiseido Co, and Mitsubishi Mining.

So, there you have it. An introduction to some major indices and how to go about trading on them. If you are interested in trading these indices, it's important to stay up to date with information relating to those sectors and economies that the indices represent. For example, tech-heavy indices in the US require in-depth knowledge about both the US and the tech sector. Remember, there are no guarantees in trading so be sure to research thoroughly.

Katya Ryder | School teacher, earned National Board Certification in 2013 I have a passion for science and majored in biology at Arizona State University, where I also earned teaching certificate and Master of Education

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