Stock indices are one of the most popular financial instruments among PIPSZONETrades traders. This is
not surprising, as these assets are suitable for trading among beginners and professionals using
different trading strategies. We have analyzed the features of stock indices as a trading instrument so
that you can learn more about these assets by using them in your trading experience.
What are stock indices
Stock indices are financial assets that unite several dozens of companies' shares by a particular
characteristic (country, field of activity, capitalization, etc.). Accordingly, each index shows the
general dynamics of changes in the price of a group of shares. This makes it possible to react faster to
cardinal market changes in a certain field of activity. Indices also make it easier to assess the
economic situation, allowing you to track growth, decline in price or a flat on long-term trends.
Most stock market indices are calculated according to the market capitalization of their component
companies. This method gives greater weighting to larger cap companies, which means their performance
will affect an index’s value more than lower cap companies.
However, some popular indices – including the Dow Jones Industrial Average ($DOW30) – are price-weighted. This method
gives greater weighting to companies with higher share prices, meaning that changes in their values will
have a greater effect on the current price of an index.
Stock indices have an alternative method of calculation. In most cases, the relative change of an index
is more important than the actual numeric value representing the index. For example, if the FTSE 100
Index ($FTSE100) is at 6,725, that number
tells investors the index is nearly seven times its base level of 1,000. However, to assess how the
index has changed from the previous day, investors must look at the amount the index has fallen, often
expressed as a percentage.
What are the most traded indices?
- Standard and Poor's 500 ($SPX500) tracks the capitalization dynamics of
more than 500 shares of the largest U.S. companies (worth more than $15 billion) listed on the NYSE or
NASDAQ. The index covers more than 80% of the total capitalization of the U.S. stock market. More than
a quarter of the index's capitalization comes from nine giant companies such as Apple, Microsoft,
Alphabet/Google, Amazon, Meta Platforms/Facebook, Tesla, NVIDIA, Berkshire Hathaway and JPMorgan
Chase.
- NASDAQ ($NAS100) includes
almost all stocks traded on the NASDAQ. It is predominantly an index of demand dynamics for stocks of
information technology companies. The top 100 non-financial companies traded on the NASDAQ Composite
account for over 90% of the movement in the NASDAQ Composite.
- Dow Jones ($DOW30) is
the oldest existing U.S. market index. It was created to track the development of the industrial
component of U.S. stock markets. The index covers the 30 largest U.S. companies, including Boeing,
Chevron, Coca-Cola, General Electric, Intel, IBM, and others.
There are also indices traded on PIPSZONETrades . For example, the DAX30 ($DAX30), tracks the 30 largest companies in
Germany or the Nikkei, which includes the largest Japanese companies from various sectors. Accordingly,
every developed economy in the world has its own stock index, which you can trade in CFD format.
How to predict the price of indices?
To trade stock indices efficiently and profitably, you need to analyze and predict their quotes.
PIPSZONETrades has all the necessary tools for analysis, including detailed charts, built-in charting
tools and indicators, and more. However, there are several external (fundamental) factors that you need
to consider when predicting the price of indices:
- Economic news – investor sentiment, central bank announcements, payroll reports or
other economic events can affect underlying volatility, which can cause an index’s price to move
- Company financial results – individual company profits and losses will cause share prices to
increase or decrease, which can affect an index’s price
- Company announcements – changes to company leadership or possible mergers will likely affect share
prices, which can have either a positive or negative effect on an index’s price
- Changes to an index’s composition – weighted indices can see their prices shift when companies are
added or removed, as traders adjust their positions to account for the new composition
- Commodity prices – various commodities will affect different indices’ prices. For example, 15% of
the shares listed on the FTSE 100 ($FTSE100) are commodity stocks, which
means any fluctuations in the commodity market could impact the index’s price.
Ways to trade stock indices
Indexes were created to track the dynamics of financial markets, so you cannot purchase a certain
number of index units as you can in the case of company stocks. You can trade stock indices (including
futures or index derivatives) using contracts for differences.
It allows you to open Buy and Sell orders on any volume of indices, setting Stop Loss and Take Profit
at the same time. Consequently, you can profit by trading the indices at any price change, as well as at
bearish and bullish markets. This is very advantageous because you do not have to wait for the best
moment to open an order. Analyze, predict and open a trade at any time, whether the price is going up or
down.
With CFDs, your profit or loss is determined by the accuracy of your prediction, and the overall size
of the market movement.
In addition, you can use any trading strategy in stock index trading:
- Long-term strategy means opening trades for a long period, from a few weeks to a few months.
- Short-term strategy means opening trades for a short period, from a few hours to a few days.
Use all the analytical possibilities with the PIPSZONETrades ’s enhanced and well-built tools in order
to increase your chances for profitable trades.
Conclusion
Stock indices are critical to measuring performance and can provide investors with valuable information
about the performance of larger segments of the stock market in a more convenient and easily interrupted
package. They can also form the basis of a solid long-term, low-cost investment strategy, and they are
well worth following and researching further.
Summary
- Stock indices are one of the most popular financial instruments among PIPSZONETrades traders.
- Stock indices are financial assets that unite several dozens of companies' shares by a
particular characteristic (country, field of activity, capitalization, etc.).
- With CFDs, your profit or loss is determined by the accuracy of your prediction, and the overall
size of the market movement.
- Use all the analytical possibilities with the PIPSZONETrades ’s enhanced and well-built tools in
order to increase your chances for profitable trades.
