A stock market index is a section of stocks in a market. It is used by traders and economists to compare returns on different assets, to track the overall economy or as an investment vehicle. Among the most common types of indexes include global indices, regional indices and national indices.
When you see a wide-eyed news presenter state that ‘the market has hit all-time highs!’ they are referring to an index. In the US, major stock indices include the S&P 500 and the DJIA (Dow Jones Industrial Average) and in the UK it’s the FTSE 100.
This page covers some of the most traded stock indices worldwide like the S&P 500, DJIA, NASDAQ, FTSE, Nikkei 225, the DAX and more. You can view live rates for daily movements, find out more about stock indices in trading, how they are calculated and what moves prices. Our indices trading hours will help you determine the best time of day to trade major indices and gain exposure to the markets.
What are indices in trading?
Stock market indices represent the value of a group of underlying publicly-traded companies. A stock market index tracks a collection of stocks to gauge a market’s overall performance. For example, the S&P 500 consists of 500 US companies, so the index tracks the US market.
Indices are highly liquid, have clear chart patterns and trade with tight spreads making them ideal tradable assets.
Some popular indices you may be familiar with include:
How are stock indices calculated?
It is important for a stock market to be transparent. Transparent in what stocks are included in the index and how the index is calculated. Transparent indices are easier for ETF’s to track because they help ETF managers allocate the right weights to the different stocks in the ETF.
There are many ways to calculate the value of a stock index, but the most popular methods are:
- The Market Capitalization Weighted Method whereby the stocks in the index are weighted using the market capitalization of the individual companies. The largest company in the index by market cap will generally lead to the most movement in the index. The S&P 500 is an example of a market capitalization weighted index.
- The Price Weighted Method whereby the stocks in the index are weighted by the price of the stock. This can lead to companies with smaller market capitalizations but higher stock prices having a bigger effect on the overall index. The DJIA is an index weighted using the price-weighted method.
- The Equal Weighted Method whereby the return of each stock in the index is calculated and then summed and divided by the amount of stocks in the index.
- The Fundamental Weighted Method whereby the index is constructed using fundamental aspects like price to earnings ratios, earnings, book values and others.
Most indices are calculated using the market capitalization weighted method.
What moves indices markets?
An index moves as its constituents move whether they be market caps, fundamentals, or just the prices of the stocks. The method used to calculate the index can also lead to different results.
Indices rates are influenced by a few things, mainly:
- The index constituents. The companies that make up an index will affect its price. The largest contributors to the index should be always be monitored as they will move the index the most.
- Economic Data. If, for example, the index is based mostly on US stocks like the S&P 500 then economic data on the US economy will most likely affect the price of the index. The data that investors will look at include inflation, unemployment, inventory levels and treasury yields. amongst others. All this economic data can be found on our Economic Calendar.
- Politics. Trade wars and regulation can have adverse effects on indices. Generally, indices will benefit from talk of free trade, talk of de-regulation and lower taxes.
Why trade indices?
Stock market indices are traded in large volumes and are very popular in the investing community. They are not only a great place to start for beginners but are also traded by experienced professionals daily. Indices are great for day-traders and long-term traders alike.
Here’s some of the benefits of trading the major indices:
- They are highly liquid, which gives traders tight-spreads and clear chart patterns.
- They provide volatility. Indices represent the health of the economy they track, changes in the economy can cause the indexes volatility to increase which leads to great trading opportunities.
- Indices allow traders to bet on the price of the index going up and down. This leads to more opportunities as traders can capture the upside and downside of a movement.
- There are different indices for different industries and sectors, so traders can gain exposure indices that match their preferences. If a trader wants to capture gains in technology, he/she can trade the US Tech 100.
Indices-Trading Top Tips
Trading indices is like trading other financial assets. Traders will try to predict if the index will go up or down and then either buy or sell the index. The reasons for entering the trade are of utmost importance and keeping up to date on market events is crucial.
- To stay ahead of the market, see our Equities Forecast where experts analyze some of the major indices like the S&P 500, DAX, and the FTSE 100.
- Before entering a trade, decide on a risk-reward ratio. At DailyFX we recommend using a positive risk-reward ratio, see our Traits of Successful Traders guide for more information on this.
- Keep an eye on economic data to be released. Economic data can have an impact on spreads and volatility and traders should avoid trading before high-impact economic data releases. See our economic calendar for the dates and times of important data releases.
- Traders should always update their knowledge and skills. DailyFX experts host webinars that cover trading strategies and tips, see our Webinar Calendar to learn more.
view our stock market news and analysis articles to stay up to date on the major index markets
Major stock indices trading hours
Indices can be traded using futures or the underlying cash index. Futures trade almost 24/5 while the underlying cash indices trade on different times depending on the broker. The table below shows the main market trading hours of the popular cash indices market. The indices do trade outside the main market hours but with an increased spread due to the lack of liquidity.
Main Market Open (ET)
Main Market Close (ET)
Main Market Open (GMT)
Main Market Close (GMT)
US Tech 100
6:00am (Break 2:30GMT – 3:30GMT)
Hong Kong HS50
7:00am (Break 4:00am – 5:00am)
EU Stocks 50
Written by Admin
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