- Stock market indices are essential tools for checking the general performance of the market. They give investors a quick insight into how the whole market is performing, helping them make smart choices.
- There are several stock market indices globally, but the five most traded indices include the S&P 500, Dow Jones Industrial Average, FTSE 100, Nasdaq 100, and Dax 30.
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When understanding the global economy, stock market indices serve as an indicator, as they show investors the overall market sentiment and economic health.
In this article, we delve in on what indices are and the 5 most traded stock market indices
What are Indices?
Indices are essential tools for assessing the general performance of the market. They give investors a quick insight into how the whole market is performing, helping them make smart choices.
Stock market indices are calculated using the prices of certain stocks, which are generally a weighted average.
There are different stock market indices. These indices are used for various purposes and have their characteristics.
Examples of these stock market indices are:
- Global indices
- Regional indices
- National indices
- Benchmark indices
- Sectoral indices
- Market-cap indices
The way a stock market index operates depends on how it’s weighted – either by market capitalisation or price.
How can you use the stock market to your own benefit?
- It helps in identifying the overall market performance.
- Different market segments can be compared.
- It guides market participants on how to make informed investment decisions.
- Stock market indices provide deeper insights into market trends and movements.
- It helps gauge market direction, whether upward or downward.
5 Most Traded Indices
Many indices exist within the stock market, and the most popular are:
1. S&P 500
The S&P 500 is also known as the Standard & Poor’s 500.
It serves as a stock market indicator that monitors the performance of approximately 500 companies listed on both the New York Stock Exchange (NYSE) and the Nasdaq.
The S&P 500 was created in 1957, but its history can be traced back to the 1860s. It is the combination of two companies, which are the standard statistics companies founded in 1968.
2. Dow Jones Industrial Average
This market index was founded in 1896 by Charles. H. Dow, a journalist and Edward Jones, a statistician. The index was initially called Dow Jones Railroad Average, consisting of 11 stocks, including the two non-rails, and New York Central and Union Pacific.
It was created to measure the performance of the industrial sector, but over time, it has evolved. The Dow Jones Industrial Average tracks the performance of 30 large-cap American companies, with this investors can determine the overall performance, prices, and direction of stock prices made available by companies listed on the exchange.
Unlike other indices, Dow Jones doesn’t make use of market capitalisation. The index is price-weighted, meaning it gets its value from the price per share of each stock divided by 0.152.
The Dow Jones Industrial Average is owned by S&P Dow Jones Indices, which is a division of S&P Global. Dow Jones remains one of the top traded stock exchanges because investors can guarantee that companies listed on this exchange have the ability to generate a good return on their investments.
3. FTSE 100
The Financial Times Stock Exchange 100 Index is popularly known as the FTSE 100. The index was launched on 3 January 1984. FTSE 100 is a share index of the 100 companies with the highest market capitalisation listed on the London Stock Exchange.
These companies collectively represent about 81% of the entire exchange market capitalisation. This makes the FTSE 100 a good reflection of the UK’s economy.
The FTSE 100 includes several companies that have a solid global presence. Any changes in the value of the British pound can significantly impact how the index moves.
Investors closely monitor the FTSE 100 because it helps them understand the UK economy. This market index appeals to both local and international investors who want to invest in a variety of leading UK businesses. This is because it mainly includes large British companies.
4. Nasdaq 100
This index was launched on 31 January 1985. It comprises the top 100 non-financial companies listed on the Nasdaq stock market.
The index comprises companies from various sectors, including Industrial, Technology, Retail, Telecommunication, Biotechnology, Health Care, and Transportation.
It also includes leading tech giants, such as Apple, Microsoft, and Amazon, along with prominent biotech companies and retail innovators. This makes it the most known technology index.
According to data from companies’ market cap, Nasdaq is ranked as the world’s 669th most valuable company by market cap. Nasdaq’s market cap as of 25 October 2023 was $24.3 billion.
5. Dax 30
The DAX 30, also known as the Deutscher Aktienindex, is the main stock market index in Germany. It was launched on 1 July 1988, with a base value of 1,000 points.
This market index captures the performance of the 30 most significant and most liquid companies on the Frankfurt Stock Exchange.
The DAX 30 includes large companies like Volkswagen, Siemens, and Bayer. These companies work in automotive, manufacturing, pharmaceuticals, and finance.
The DAX 30 runs on the Xetra electronic trading system. It is known for being good at executing trades effectively without any problems.
This modern system makes trading easy for investors and helps the index work smoothly. It’s a big reason why many people, both in Germany and from other countries, like to trade using the DAX 30.
Note: There are more widely traded stock market indices than those listed above. These indices include Hong Kong 50, Nikkei 225, CAC 40, ASX 200, and Euro Stoxx 50.
Trade Indices with BitDelta
Given their popularity, indices can be traded anywhere around the globe.
BitDelta is a cross-asset exchange that allows you to trade various asset classes like foreign currencies, commodities, stocks, crypto, bonds, etc. On the BitDelta exchange, multiple assets are listed, and investors can trade any asset class or currency with ease.
Sign up to BitDelta to start trading indices, and more.