In the vast majority of cases, the index will track the price movement of shares listed on a particular stock exchange. A prime example of this is the NASDAQ 100, which tracks the 100 largest companies listed on that exchange. In this way, as an investor, you can gain exposure to 100 companies without having to place 100 trades.
If this were the case, can you imagine how long it would take to buy shares in 100 companies individually? Not only would you be hit by a lot of brokerage fees, but you would also have to constantly buy and sell shares as new companies are added to the index. If you are involved in stock index trading, you will still benefit from dividend payments - as long as you invest in an ETF. If you decide to trade the index via CFDs, you will not.
The Benefits
An added benefit of investing in a stock market index is that you can create a highly diversified portfolio of companies. For example, the S & P 500, which tracks the 500 largest companies in the US, has had an average annual return of 1928% since its inception in 9.8. This is because you are investing in the US economy rather than backing individual companies. Sure, the US has gone through several recessions over the past nine decades, but the economy has always recovered.
Even if a company within a stock market index went bankrupt, this is not always decisive - especially in the case of the S & P 500. If you are interested in short-term index trading, this is possible via CFDs in personal area . This way you can leverage your chosen index and sell short. However, you are not entitled to any stock dividends when you short an index, as you do not own the underlying asset.
Most popular index trading instruments
There are literally hundreds of stock market index funds traded in the global economy. The following list gives you an idea of the most popular index trading instruments as of 2020.
S & P 500: The Standard and Poor 500 or simply 'S & P 500' is the most widely traded stock market index in the world. As mentioned earlier, it consists of the 500 largest listed US companies. This includes companies listed on both NASDAQ and the New York Stock Exchange. This particular index is the ultimate tool to invest in the US economy.
Dow Jones: Even if you are a newbie, it is almost certain that you have heard of Dow Jones. Interestingly, although the Dow is also a great indicator of the US economy, it only consists of 30 companies. This includes large companies listed on both major US stock exchanges in different industries.
FTSE 100: The FTSE 100 is a UK stock market index that tracks the 100 largest companies listed on the London Stock Exchange. This is a great way to get exposure to the entire UK economy.
NASDAQ-100: If you want to focus on the tech-oriented NASDAQ stock market, it may be worth looking at the NASDAQ 100. As the name suggests, this tracks the 100 largest companies listed on NASDAQ. The index is dominated by big tech companies such as Apple, Microsoft and Amazon.
Nikkei 225: The Nikkei 225 tracks the 225 largest companies listed on the Tokyo Stock Exchange. These include Toyota, Japan Tobacco, Honda, Nikon and Yamaha, among others.
Russell 2000: Unlike the S & P 500 and Dow Jones, the Russell 2000 tracks small to mid-sized US companies. With 2,000 individual companies making up the index, this is another great tool for diversification across the US economy.
