Indices Comparison

An index is a conglomeration of many stocks from different companies. The index is used to measure that particular section of the market. Some indices contain company stocks from the same type of industry.

Other indices have company stocks from a variety of industries. For example, all financial business companies might be in one index. All technology companies might fall under another index on exchanges.

The market price of the index demonstrates how an industry is fairing. Strong steady prices mean the industry is doing fairly well. Indices doing well are often traded by traditional day traders.

What Indices Tell an Investor

A strong index price does not always mean each stock is doing well. Strong indices are a strong indicator of profits, but not a guarantee. An index price allows traders to see how overall markets are doing.

Each country has its own indices and can be traded country to country. The United Kingdom's major indices include the FTSE 100 and FTSE 250. The FTSE 100 is a one where not all shares are from the same industry.

The Dow Jones Industrial Average is a well known index from 1896. The Dow Jones index is the most widely traded index worldwide. The Dow is a whole of 30 blue chip companies and tracks performance.

The stock prices are added together and then divided by a factor. This factor adjusts for differences that may occur when stocks split. Other Dow Jones averages are split by industry, like transportation.

S&P and Nasdaq

The S&P 500 is another index on exchange which consists of 500 stocks. These company stocks are from a variety of industrial sectors. The benefit to the S&P 500 is it is capitalisation-weighted.

This means each company may influence the S&P proportionally. This index is not traded by novices, but by professional traders. It is a fairly tricky index and requires constant monitoring.

The Nasdaq is an important index for professional and active traders. This is because it measures the Nasdaq domestics and foreign stocks. The Nasdaq is like the S&P because it is capitalised-weighted.

Understanding the different indices is important in trading. It is because the value of an index is an indicator of market changes. Indices market prices are used by traders to predict future movements.

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