What are indices?
Indices are a measurement of the price performance of a group of shares from an exchange. For example, the FTSE 100 tracks the 100 largest companies on the London Stock Exchange. Trading indices enables you to get exposure to an entire economy or sector at once, while only having to open a single position.
You can speculate on the price of indices rising or falling without taking ownership of the underlying asset with CFDs. Indices are a highly liquid market to trade, and with more trading hours than most other markets, you can receive longer exposure to potential opportunities.
Some of the most heavily traded live Indices markets include:
- The FTSE 100– Sometimes called the ‘UK 100,’ this represents the UK’s hundred biggest companies by market capital
- Dow Jones – Often referred to as simply ‘Wall Street’ this comprises 30 of the US’ biggest publicly owned companies
- The DAX– Referred to as the ‘Germany 40,’ this index is made up of 40 major German companies
- NASDAQ 100 –The ‘US Tech 100,’ is a capitalization-weighted index made up of over 100 tech companies in the US
- Nikkei 225– Japan’s biggest price-weighted index is comprised of 225 of the country’s biggest companies
- CAC 40– Simply referred to as the France 40 this comprises 40 of France’s biggest companies by capitalization
The UK 100 is one of our most popular Indices markets and has been in operation since 1984. Managed by the FTSE Group, a subsidiary of the London Stock Exchange, the UK 100 index includes stocks from some of the country’s best loved companies.
Household names comprising the UK 100 include companies from a wide range of sectors like Barclays, Burberry, Experian, Glencore, HSBC, Just Eat, Royal Mail, Tesco and Vodafone Group.
Because the UK 100 is made up of such a diverse range of companies across a variety of sectors it is less sensitive to factors which could impact individual stocks more disproportionately.
For example, a big economic data release or a sudden change in the value of the pound could adversely immediately affect the prices of companies in sectors like banking, while the same news may not impact companies like exporting.
Wild fluctuations and sharp volatility are therefore less likely when trading Indices like the UK 100 than when trading individual Shares.
Wall Street is the colloquial name given to the Dow Jones Industrial Average Index, which was launched in 1885. Now run by Standard & Poor’s and Dow Jones, the Wall Street index remains incredibly popular with investors for its wealth of trading opportunities.
Some of the iconic brands and companies comprising the Wall Street index include; Apple, Boeing, Caterpillar, Coca-Cola, Intel, McDonald’s, Microsoft, Nike, Visa and Walt Disney.
Like the UK 100, the sheer diversity of sectors represented in the Wall Street index means that the index is less sensitive to extreme volatility that might otherwise affect price movements of a single share.
The NASDAQ index is the third major US stock index and was originally launched in 1971. It is comprised of 100 major companies across a wide variety of sectors with a focus on tech.
The NASDAQ index includes big names like Apple, Tesla, Cisco, Seagate, Intel, Adobe, Activision Blizzard, NVIDIA, Netflix and more.
While the NASDAQ is primarily dominated by the tech sector, it also boasts companies from industries like aviation, consumer services and healthcare.
The Germany 40 is a popular European index with investors due to the historically strong performance of companies on the Frankfurt Stock Exchange.
Founded in 1988, the Germany 40 is ordered by market capitalisation and is managed by Deutsche Börse.
Companies which make up the Germany 40 index include some of Germany’s biggest companies and brands which have global significance like Adidas, Allianz, BMW, Daimler, Deutsche Bank, Lufthansa, E.ON, SAP, Siemens and Volkswagen Group.
As with other major global Indices it is easy to see the diversity in the different stocks which make up the Germany 40, which is good news for investors looking for medium to longer term trading opportunities with less risk of extreme volatility.
How to identify what moves an index’s price
An index’s price can be affected by a range of factors, including:
- 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 are commodity stocks, which means any fluctuations in the commodity market could affect the index’s price.