When the economy takes a turn, either up or down, stock indexes are usually the early indicators of how markets will behave. Stock market indexes are powerful resources to assess global and domestic economic patterns. They also offer traders flexibility and insight when it comes to trading.
What is a stock index?
A stock index, or stock market index, measures the stocks and shares of a nation’s biggest companies, or a subset of the stock market. Subsets are usually divided into industry such as technology, agriculture and so on.
Stock markets help investors compare current and former stock price levels to calculate and asses market performance, and to gauge economic performance for nation’s as a whole.
What are the different stock indexes?
There are numerous stock indexes to trade on. In the US alone there are approximately 5,000 different indexes, each focused on a different category of the economy. There are a few big stock indexes you should know about if you are thinking about trading on stock indexes.
In recent years, the Nasdaq or USTEC has become internationally important as it is where stocks in technology are traded. Although it is a US stock index, the Nasdaq also includes companies not based in the United States. It also features many sub sections of the technology industry.
As one of the oldest stock indexes in the world, and most well know, the Dow Jones often acts as an indicator for global stock activity. The US stock index houses the stocks of the nations 30 largest and most influential businesses.
As the primary stock index in the UK, the Financial Times Stock Exchange (FTSE) index is the share index for the nation’s 100 largest and most powerful companies. It is used as a gauge of prosperity for businesses and the UK economy, often indicating global economy shifts as well.
The Nikkei stock index is one of the predominant market indexes for the Far East, the other being the Shanghai Stock exchange (SSE). Since 1950, the Nikkei has been calculated to represent Japan’s biggest companies and their influence in the stock market.
Why trade with a stock index?
Due to their well-rounded nature, stock indexes are a popular choice for traders as they provide information on baskets, or “indices”, of stocks, not just a single company’s trading price. They are great for market analysis to assist you when trading stocks.
What are indices and why trade on them?
To assess how a market is performing, indices group shares together from a single stock index, offering the trader exposure to a whole industry sector or economy at once.
Traditionally, stock indices offer a broader depth of trading options. This makes them more desirable for traders who want to spread their wealth across multiple options in the hope of better returns.