Due to their towering presence in the financial market, indices are considered as one of the most popular assets. Their popularity can be attributed to the fact that they are linked with all the other assets available in the binary options industry. Furthermore, the index market, also known as the stock market, is so vast that it has been cautiously segmented by continents. That is, Asia has its set of indices just like the United States has its own indices.
An index is defined as being a representation of the combined performance of several giant companies. In other words, an index is a portfolio of stocks or companies which will give indications concerning the performance of a segment of an overall market. For example, Apple and Microsoft are both part of the Nasdaq Composite l index, meaning that if the price of the shares of Apple decrease, the performance of Nasdaq will be downbeat too.
The origins of the index market
The rise of the first trading index.
The index market was created as it was too difficult and time consuming to keep track of the performance of every stock which was traded in a country. Therefore, to have a better control on the performance of the different securities, the index market was created. This market was used to track the performance of the stock market as a whole.
Binary options and indices.
Online trading literally revolutionised the market for index trading. As a result, the Dow Jones Industrial Average which was once made up of only 12 companies is nowadays one of the most powerful index present in the industry and comprises of 30 influential firms in United States. In addition to that, the simple average calculations once used have been replaced by another methodology known as the price based weighting.
Furthermore, index trading gained much popularity in 2008, with the advent of binary options trading. This sudden interest in trading indices was lit up by the fact that investors were now able to trade on the different indices available in the financial market within the comfort of their homes.
Trending indices of 2015 – 2016.
During the past 2 years, the index market attracted many investors worldwide due to its direct involvement in different countries’ economy. Even if it is a vast market, there are some assets which are very popular among traders, they are:
- The Dow Jones Industrial Average.
- The Japan’s Nikkei.
- The Hang Seng index.
- The Standard’s and the Poor index.
- The Nasdaq Composite.
Types of indices
As mentioned earlier, the index market is very vast and is segmented according to continents. Here is a list of the different indices you will have the opportunity to trade on Stella Finance trading platform:
- The Dow Jones industrial average index.
Created by Charles Dow in 1896, the Dow Jones was the first index created in United States. Since that year, this index made considerable improvement and now includes 30 of the most powerful companies operating in the US. Among this select list of companies, there are giants such as Nike and Verizon. Furthermore, all the companies present in this index are listed on the New York Stock Exchange.
- The S&P 500.
S&P is the abbreviation for the Standards & the Poor index. Brought to the market in 1957 this index is used to evaluate the value of the 500 most performing companies listed on the New York Stock Exchange market. Unlike the Dow Jones industrial, the S&P 500 index has a different weighting methodology and constituency. Example of some companies which form part of the S&P 500: Alphabet Incand Goldman Sachs Group.
- The Nasdaq composite.
Launched in 1971, the Nasdaq composite is now one of the most followed indices of United States. The Nasdaq composite is the only index which is mainly composed of information technology firms. In addition, unlike the other indices, the Nasdaq composite also accepts companies whose headquarters are not situated in the United States. The Nasdaq composite index is calculated throughout a whole trading day and this is why it is one of the most volatile indices. Examples of some companies which form part of the Nasdaq composite index: Ebay, Netflix and Tesla Motors.
- The S&P/ASX 200.
The ASX 200 is the index which represents the markets of Australia. Basically, this index was created for investors who had securities in the Australian markets and who were looking for ways to assess the performance of their investments. The main purpose of this index is to act as a barometer which measures market expectations. Examples of some companies which form part of the S&P/ASX 200 index: Commonwealth Bank of Australia and Woolworths Limited.
- The Nikkei 225.
Known as the Japan’s Nikkei this asset is among the most coveted and leading indices of Japan. Using the price weighted methodology, this index is made up of 225 of the most performing blue chip companies of Japan which are also listed on the Tokyo Stock Exchange. Examples of some companies which form part of the Nikkei 225: Toshiba Corp, Sony Corp and Canon Inc.
- The Hang Seng index.
Composed of the 40 largest companies listed on the Hong Kong Exchange, the Hang Seng index is a subsidiary of the Hang Seng Bank since 1969. Furthermore, this index is used as an indicator to gauge Hong Kong’s economic performance. Examples of some companies which form part of the Hang Seng index: HSBC Holdings PLC, and the Bank of China Ltd
Factors impacting on indices
- Quarterly earnings- these are reports are released 4 times a year and illustrate the financial performance of several companies. If the report demonstrates, for example, that the net profit of Alphabet Inc has decreased compared to last year, it will impact on its shares which will, in turn impact on the S&P 500 index.
- Performance of Stocks, for example if the shares of Apple fall for whatever reason, the index of which it forms part will also fall.
- Political events such as presidential elections can have an impact on the performance of certain indices such as the S&P 500.
- Financial and economic decisions, such as a raise in the interest rates can impact on the different indices.
How to trade Indices with Stellar Finance?
- Log in your trading account. If you do not possess one, you are kindly requested to open one there.
- Make a choice among our selection of trading tools.
- Choose your preferred asset among the list of indices and set your expiry time.
- Choose for Call if you think the price of the chosen asset will rise and select Put if you think the price will fall within the expiry time.