TRADING IN CFDS ON INDICES
Equity indices, or stock indices as they are also commonly known, are actual stock market indices, which measure the value of a specific section of a stock market. They are calculated based on a weighted average of the prices of selected stocks, which belong to the actual category that they represent. Stock indices can represent a specific stock market such as NASDAQ, or they can represent a particular set of the largest companies of a nation such as the American S&P 500, the British FTSE 100, or the Japanese Nikkei 225.
The purpose of the indices is to show the general direction of a specific stock market or the general economy of a nation. However, since stock indices are composed of a basket of companies, they can be very much affected by a big move of a specific company or a particular trade sector.
The actual weight given to a stock index from the underlying basket of stocks varies amongst the various indices, which means that not all use the same criteria to derive the end result. The two main ways to calculate the actual weight a specific underlying stock produces to the index itself is price weighting and capitalization weighting.
Below you can see the category which some of the very popular indices belong to:
Dow Jones (US30) and Nikkei 225 (Japan225) are price-weighted indices.
FTSE 100 (UK 100), ASX200 (Australia 200), Hang Seng Index (Hong Kong 50, DAX (Germany 30), CAC 40 (France 40), and IBEX35 (Spain 35) are some of the main stock indices which are capitalization weighted.
The Major Indices
S&P 500 (US500): The S&P500 (US500) stock market index was introduced by the American financial services company Standard & Poor’s Financial Services LLC in 1957. It is a leading indicator of US equities. As one of the most frequently used benchmarks for the US stock market, on the whole, it covers about 75% of the American equity market by capitalization.
ASX200 (Australia200): The ASX 200 (AUS200) index is a market-capitalization-weighted stock market index of stocks listed on the Australian Securities Exchange, which belongs to the world’s top 15 exchange groups with an average daily turnover of $4.685 billion. The index exclusively includes stocks listed on the Australian Stock Exchange.
Nikkei 225 (JP225): The Nikkei 225 (JP225), commonly known as Nikkei, is a stock index of the Tokyo Stock Exchange, the world’s third-largest stock exchange with a market capitalization of $4.09 trillion.
HSI (HK50): The HIS (HK50), Hang Seng Index, is a market-capitalization-weighted stock market index that has been used since 1969 to record the daily changes of the 50 largest companies present at Asia’s second (and the world’s sixth) largest stock exchange, the Hong Kong Stock Market (HKEx).
FTSE 100 (UK100): The FTSE 100 (UK100) stock index stands for Financial Times Stock Exchange 100 Index, encompassing the 100 companies with the highest market capitalization listed on the London Stock Exchange.
NASDAQ 100 (US100): The main NASDAQ index is the NASDAQ Composite, with its subset NASDAQ 100 (US100) that consists of 107 equity securities issued by the 107 most powerful non-financial companies listed on the NASDAQ Stock Exchange.
DJIA (US30): DJIA (US30), the second oldest stock market index in the United States after the Dow Jones Transportation Average, shows the performance of 30 major American companies during a standard trading session in the stock market. It is calculated by the DJIA Divisor by dividing the total sum of all the prices of all 30 stocks that it represents.
DAX (GER30): DAX (GER30), which stands for Deutscher Aktienindex, is the principal German stock market index representative of the 30 major companies that trade on the Frankfurt Stock Exchange. It is considered to be a blue-chip index in terms of quality and profitability.
CAC 40 (FRA40): The French benchmark stock market index CAC 40 (FRA40) stands for Cotation Assistée en Continu, and it represents the top 40 values of the 100 highest market-capitalization company stocks traded on the French securities market Euronext Paris, the second largest exchange in Europe.