Beginner to Independent Trading Course
About Lesson

What are Indices?

You may have already heard of stock indices such as the FTSE 100, the Dow Jones or the Nikkei 225. Numbers often quoted on the news, or in the business section of the newspaper, usually alongside a value saying how much they’ve moved up or down.

But what are they? And what do they represent?

A stock index is a measurement of value of a certain section of the stock market.

The FTSE 100 for example, is a number representing the largest 100 companies traded on the London Stock Exchange.

If, on average, the share price of these companies goes up, then the FTSE 100 will rise with them. And if the share prices fall, it will drop.

Why are They Important?

Stock indices give traders and investors an indication of how an exchange, region or sector is performing.

The ASX 200 for example, tracks the performance of 200 of the largest companies in Australia. If the ASX 200 starts to rise, then on average these companies are performing well. A rising ASX 200 tells investors that, generally, the state of the Australian stock market is improving.

And if the Australian stock market is on the up, then more often than not, the entire Aussie economy tends to be doing well. So, movements in the price of major stock indices can often give traders an indication as to the health of an entire country.

That’s important information when planning your next trade.

What are The Major Stock Indices?

Most nations have one major stock index that represents the largest companies in that country. For example:

FTSE100 – UK

DAX – Germany

CAC 40 – France

IBEX 35 – Spain

FTSE MIB – Italy

Nikkei 225 – Japan

Hang Seng – Hong Kong

ASX 200 – Australia

TSX 60 – Canada

However, in the US there are several major indices, all based on slightly different sections of the market. The three main US indices are:

Dow Jones Industrial Average (DJIA)

One of the oldest and most quoted indices, the Dow Jones Industrial Average represents 30 of the most influential companies in the US. It was first calculated in 1896 and historically was made up of firms involved in heavy industry. Nowadays this association has been all but lost.

S&P 500

More diverse than DJIA, the S&P 500 is based on the value of 500 of the largest US shares listed on either the New York Stock Exchange (NYSE) or NASDAQ. It was first used in its current form in the 1950s and today represents around 70% of the total value of the US stock market.

NASDAQ-100

Established in 1985, the NASDAQ 100 is based on 100 of the largest non-financial companies listed on the NASDAQ exchange in New York City. It represents firms across a number of sectors, but in particular computing, telecommunications and biotechnology.

The indices tend to all move in a similar direction. If the FTSE100 is up you will tend to see the Nasdaq-100 up as well this is because they are all generally affected by market conditions and stock market sentiment.

When the UK stock market opens you are likely to see more volatility and increased volume in the FTSE 100. Similarly when the US stock market opens at 2.30 GMT the Nasdaq and S&P will likely have an increase in volatility because it represents those stocks. When your trading indices and looking for specific entry this can be a time to look to trade as you know the markets are more likely to move and you can have your risk/reward entry levels in place around the market open.

Start trading today in 3 simple steps

1

Register

Choose your account type and create your account

2

Fund

Fund your account with your chosen funding method

3

Trade

Access over 250+ trading instruments on MT5

Thank you for visiting Kudotrade

This website is not aimed at residents of Germany and is not subject to the European regulatory framework and MiFID II as well as BaFin’s rules, guidelines and safeguards.

Please click below if you wish to continue to Kudotrade anyway.

Merci d'avoir visité Kudotrade

Ce site n’est pas destiné aux résidents français et ne relève pas du cadre réglementaire européen et MiFID II, ainsi que des règles, orientations et protections définies par l’Autorité des marchés financiers.

Veuillez cliquer ci-dessous si vous souhaitez continuer vers Kudotrade de toute façon.

Grazie per aver visitato Kudotrade

Questo sito web non è rivolto ai residenti italiani e non rientra nel quadro normativo europeo e MiFID II, nonché nelle regole, linee guida e protezioni stabilite dalla CONSOB.

Clicca qui sotto se desideri comunque continuare su Kudotrade.

Gracias por visitar Kudotrade

Este sitio web no está dirigido a residentes españoles y queda fuera del marco regulatorio europeo y MiFID II, así como de las normas, orientaciones y protecciones establecidas por la CNMV.

Haga clic a continuación si desea continuar en Kudotrade de todos modos.

Thank you for visiting Kudotrade

This website is not directed at UK residents and falls outside of the European and MiFID II regulatory framework, as well as the rules, guidance and protections set out in the UK Financial Conduct Authority Handbook.

Please click below if you wish to continue to Kudotrade anyway.