Whenever we think about major stock and trading indexes, our minds are instantly drawn to globally recognisable entities such as the Dow Jones Industrial Average and the S&p 500 (and the JSE in South Africa).
One of the main reasons behind the popularity of these indexes is their high profile and the daily news events that engulf them, while they also cover a broad range of industries and relatively stable, high-value stocks.
In this post, we’ll look at why the concept of trading indices is so popular, while appraising the most renowned and traded indexes in the global marketplace.
How can trading indices help to diversify your portfolio
If you trade regularly you can download the MT4 platform, you’ll notice that you have access to a broad range of markets and asset classes.
This includes indices, which work by providing a measurement of the price performance of a group of shares from a particular exchange.
Aside from the examples referenced above, a particularly prominent index in the UK is the FTSE 100. As the name suggests, this tracks the largest 100 companies in the UK, covering an array of industries including technology, finance and energy.
As for the aforementioned JSE, this is the largest exchange in SA and is based out of Johannesburg. It features around 442 listings (once again across a wide range of industries), while its combined market capitalisation is $1,005 billion.
But what are the main benefits of trading indices? Well, this offers you access to instant diversification as an investor, as it provides broad coverage of various growth sectors and (in the case of the DAX 30 in Germany) access to a selection of a nation’s best performing equities.
It’s crucial that investors are able to diversify their interests as a way of minimising risk and their exposure to a single asset or industry, and indices provide a natural vehicle through which to achieve this objective directly.
3 of the World’s Most Traded Indices
To conclude the post, we’ll look at three of the most traded global indices, while asking why they’re so popular amongst investors.
- The JSE (South Africa): We’ll start with the JSE, which as we’ve already said features 442 separate listings and a market cap of around $1,005 billion. The dominant index in Africa, it covers a brand range of industries and prominent assets like the BHP Group PLC, Glencore PLC and Vodacom Group Ltd.
- The FTSE 100 (UK): The FTSE 100 is the primary measure of the leading 100 equities in England, Scotland, Wales and Northern Ireland. It’s total market cap was measured at an incredible £1.814 trillion ($2.504 trillion), while the exchange is capitalisation-weighted and features diverse and globally renowned brands like Royal Dutch Shell, BP and GlaxoSmithKline.
- The S&P 500 (US): We’ll close with the US-based S&P 500, which was founded more than 64 years ago and factors in prominent exchanges such as the NYSE and Nasdaq. At present, a total of 505 premium companies are listed, with these large cap firms combining to create a total market cap of $33.4 trillion. This makes it the largest capitalisation-weighted index in the world by this measure, and one that features equities like Apple, Amazon and Microsoft.