Indices are a group of stocks from the same industry, placed under one name and are mainly used as an economic indicator to understand how the economy of a country is going, or a certain sector of it. They can be grouped on certain industries, like NASDAQ which is a composition of IT companies
in the USA. They can be grouped also by the impact that they have on the overall economy of a country, for example S&P 500 is created by the largest 500 companies which are traded on the New York Stock
You need to be familiar with some of the main indices in the industry, so you would be able to find which of them is suitable for you. Find below the top indices and what they monitor:
S&P 500- The S&P 500 tracks the market capitalizations of 500 of the largest companies traded on the New York Stock Exchange. It encapsulates about 75% of the equity on the American market.
NASDAQ Composite– The NASDAQ Composite consists of 107 of the most power non-financial companies listed on the NASDAQ Stock Exchange. It encapsulates the companies whose focus is on information technology.
Nikkei 225– The Nikkei 225 tracks the Tokyo Stock Exchange. Japan is one of the largest equity powerhouses in the world, with over US$4.09 trillion in market capitalization.
FTSE 100– The FTSE 100 stands for Financial Times Stock Exchange 100 Index and tracks the top 100 corporations trading on the London Stock Exchange.
ASX200– The ASX 200 weighted stock market index devoted entirely to stocks being traded on the Australian Stock Exchange. Australia’s equity is growing quickly and the Australian Securities Exchange sees an average daily turnover of US $4.685 billion in a single day.
HIS– The HSI tracks the 50 largest companies trading on the Hong Kong Stock Market. Hong Kong has Asia’s second largest stock exchange, and the world’s sixth largest.
Beginner traders think that an index is calculated simply by adding the value of each stock on the index and dividing by the total number of stocks on the equity index. In fact, it is more complex than that, because each company is depended on different factors and it has different attributes to be taken in consideration when it comes to evaluate how much it contributes to the health of the index.
The way a stock impact the performance of the index it belongs, goes this way: if a very highly valued corporation is living a public scandal and obviously the value of its stocks starts to go down, the entire value of the index will go down, despite the fact that other minor participants of the index are going up in their value. In the same way, the biggest stock is able to keep the index value high, even if the value of its minor participants is going down.