Stock indices are significant components of indices trading. In fact, through these indices, traders can only speculate on the general performance of a market or sector. Indices oftentimes track a set of stocks, reflecting the performance of that particular market or sector. For that reason, any Dutch trader looking to make rational decisions and grab any profitable opportunity should know which stock indices are in popularity.
The most widely known index globally is probably the S&P 500, an index reflecting the performance of 500 large companies listed on the stock exchanges in the United States. It is a reflection of technology, health care, and finance sectors and is generally believed to be an excellent indicator of the health of the US economy. The S&P 500 is about the most appealing index to index traders for the reason that it captures the performance of many different industries, and in so doing diminishes what might otherwise be an influence of any single company’s performance into the overall index.
Another big index is the Dow Jones Industrial Average; more simply, it is usually known simply as the Dow. The Dow is different from the S&P 500 since it consists of only 30 large, blue-chip companies in the United States. The Dow is tracked closely by traders worldwide, despite its relatively minor scope. For instance, it includes brands such as Apple, Boeing, and Coca-Cola. This, of course, relates to its usage as a barometer for the general state of the U.S. stock market-it has very few constituents-so it is popular in indices trading.
Across the Atlantic, in Europe, one of the leading indices is the FTSE 100. It is actually composed of the largest 100 companies listed in the London Stock Exchange, and the performance reflects the indicators of the UK economy. The index includes major players in energy, finance, and consumer goods, which makes it a broad-based index for traders who are interested in the European markets and are engaged in indices trading.
The other is the DAX index in Germany. It monitors 30 large companies in the German market, some of which are household names Volkswagen and Siemens. As again, Germany is Europe’s biggest market and boasts a sound economy, the DAX gives traders a clear view of how the Eurozone’s biggest economy is faring. It’s very popular for those wanting to specialize in the industrial and technological sectors.
For those with a focus on growth markets, the Nikkei 225 in Japan may present an opportunity. This index follows the movements of 225 companies listed on the Tokyo Stock Exchange. It’s considered one of the most important measures of Japan’s economic activity. Indices traders often seek the Nikkei 225 when they wish to have exposure to markets in Asia and the technological innovations emerging from this country.
All these indices imply different segments of the global market. This provides an opportunity for traders to diversify into different portfolios in the markets offered by these indices. Understanding the characteristics and performance of a given index can give directions to the implementation of strategies that maximize the chances of success in indices trading. Whether trading with the U.S., European, or Asian markets, the selection of the appropriate index does benefit the outcome of each trade.
