In addition to reflecting the overall performance of the stock market, the stock index is also a popular investment choice in recent years. In this article, ZFX will introduce to you 10 major global stock indexes, their trading hours, and the commonly used index-related trading products.
What is a Stock Index?
Tracking the entire stock market, or every stock in a particular group is a very difficult and complex task. Therefore, in order to make it easier for investors to compare their investment returns and track the trend of the stock market, a representative sample of the stock market of each region will be taken to calculate the average stock price, based on which the stock index is developed.
The Calculation Methods of Stock Indices
There are several factors to consider when building an index. The first is how to select a small number of representative constituent stocks from a large number of samples. The industry distribution and market influence in the index are very important. And then, the calculation method must be consistent. With the evolution of The Times, computer technology has been widely used in computing methods, and adjustments have been made to get closer to the accuracy and sensitivity of stock indexes. As times have changed and computing technology has become more accessible, the calculation method has also been adjusted constantly for better accuracy and sensitivity.
There are two common ways to calculate the weighted average price of stocks:
Price weighted calculation method
The price-weighted index is simply the sum of prices of constituent stocks divided by the number of constituent stocks. The disadvantage of this method is that the constituent stocks with small market capitalization but high stock price will have a great influence on the index.
Market value-weighted calculation method
Is the most commonly used method in most indexes, which weighs companies according to their market capitalization. The rise or fall of the company with the largest market value will cause big swings in the index.
World’s Top 10 Major Stock Indices
The Dow Jones Industrial Average (hereinafter referred to as the Dow Jones Index) is the best-known and oldest index in the world, and one of the most commonly watched indexes by investors. It contains the stocks of 30 most influential companies in the United States. Initially, the Dow used a simple price weighed method to average the closing prices of all its components and divide them by the total number of companies. However, this method may cause discontinuity at the ex-dividend date, so the divisor correction method is used to correct the changes caused by the stock split, capital increase, dividend payment and other factors, so as to maintain continuity and comparability of the average.
The dow Jones index accounts for about a quarter of the U.S. stock market value, but due to the calculation method, the index is more susceptible to the impact of high price stocks and has a slight deviation from the overall market. Therefore, It is not recommended to look at the fluctuation in Dow as the fluctuation for the entire US stock market. In addition, the Dow’s constituent stocks, which include a number of large multinational companies, are vulnerable to a bleak global economic outlook, reflecting investors’ judgment on the global outlook.
Standard & Poor’s 500 Index is made up of the top 500 U.S. public companies selected by the S&P 500 committee. Its constituent stocks not only cover technology, finance, information technology and many other industries but also change regularly on the basis of the size, liquidity and profitability of companies. S&P 500 uses the market value weighted method to adjust the weight of constituent stocks, and its comprehensiveness also make it widely regarded by investors as the best measure of U.S. big equity markets. The index represents about 80% of the total value of the U.S. stock market, so it is a good indicator of U.S. market movements.
Nasdaq 100 index (hereinafter referred to as NASDAQ 100) does not limit that its components must be a domestic company in the United States, so it also includes international listed companies. However, these companies are required to be non-financial companies. Its constituent stocks consist of 100 listed non-financial stocks, weighted according to their market value. The NASDAQ 100 index can not effectively diversify the risk because its composition is heavily weighted toward technology stocks. It is a representative index of U.S. technology stocks and an indicator of global technology stocks.
Germany’s DAX index, also known as the Frankfurt Index, is one of Europe’s three major stock indexes and covers a total of 30 major German companies in a wide range of industries. The index is calculated using the total return method, which takes into account the expected dividend return as well as the company’s share price, so it can be interpreted as a blue-chip index.
The FTSE 100 was first launched by the Financial Times and the London Stock Exchange, and is one of Europe’s three main stock indexes. The index consists of 100 companies listed on the London stock exchange with the largest market value and weighted by market value. With a market capitalisation of about 81% of the London Stock Exchange, it is considered by investors to be the best indicator of British stock market. Nevertheless, the number of international companies included in the index has grown in recent years, making it less widely used as a gauge of the UK economy.
6 / France CAC40
The CAC-40 index of France includes the top 40 companies in the Paris Stock Exchange by market value, which is weighted by market value and is evenly distributed among industries. In order to avoid the continuous rise of market capitalization in some component stocks, which could lead to concentration of weight, the index has a maximum weight limit of 15%.
7 / Euro Stoxx 50
The Eurostoxx 50 is a market-capitalization-weighted index of 50 blue-chip stocks listed in European Union member countries such as Germany and France, with a maximum weight of 10 per cent. The index covers a wide range of sectors, including banking, utilities, insurance, telecoms and energy.
The Nikkei stock average, also called the Nikkei 225, is calculated using the modified price-weighted method based on the stock prices of 225 stocks with the most active trading volume and the highest liquidity on the Tokyo Stock Exchange. With about 60 percent of the Tokyo Stock Exchange’s first-class shares traded and nearly 50 percent of its total market value, Nikkei 225 has become an important indicator for investors looking at Japan’s economy.
9 / Hang Seng Index
The Hang Seng index is an important indicator of the Hong Kong stock market. It is composed of 50 blue-chip stocks in Hong Kong. In the early days, it was a standard for Hong Kong’s economy. Now, due to the strong connection between Hong Kong and China, it is one of the references to invest in China.
10/ FTSE China A50
China A50 index includes the top 50 A-shares listed on the Shanghai Stock Exchange and shenzhen Stock Exchange by market capitalization. A-share refers to the RMB stocks registered and listed in China and traded with RMB denomination. This index can reflect China’s A-share market and is one of the important basis for international investors to measure China’s market.
Pros & Cons of Trading Stock Indices
Index investing allows investors to hold a portfolio with very lost cost, thereby avoiding the risk of individual stocks. Most indexes include stocks from different industries to achieve the effect of reducing non-systematic risks, and both long and short strategies can be used to make the investment more efficient, so index trading is very popular among investors
Although index trading has many advantages and has been favored by investors in recent years, it does mean absolute success. Investors should be aware that indices can still be extremely volatile in case of an outbreak of systemic risk. Also, many indexes use the market value-weighted method, so the movements of large companies tend to have a significant impact on the indexes, and the trend of the overall market could be ignored.
Ways to Trade Stock Indices Online
An exchange-traded fund (ETF) is the main form of passive investment. An index fund manager builds a portfolio of selected index stocks with exactly or roughly the same weights as the index and allows investors to make purchases, just as how qualified stocks have been selected in the stock market to form a portfolio.
As a form of derivative trading, contracts for difference (CFD) are contracts between buyers and sellers that pay the differences in the settlement price between the open and closing trades. CFD can trade in both directions, and investors can make profits by predicting the price rise and fall of financial market through this commodity. Index CDF trading has lower costs than stock and futures trading, so it is favored by short – and medium-term investors. Learn more about CFD
World Stock Indices Trading Hours
Most indices are trading 24 hours a day. But, after the main trading, there could be insufficient liquidity, which causes the spread to expand. Therefore, we can avoid this situation by trading in the main hours. The following chart shows the main trading hours of each index market, based on EST and GMT
|Indices||Main Market Open (ET)||Main Market Close(ET)||Main Market Open (GMT)||Main Market Close (GMT)|
|Hang Seng Index||18:30||3:00||00:30||9:00|
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Risk Warning: The above content is for reference only and does not represent ZFX’s position. ZFX does not assume any form of loss caused by any trading operations conducted in accordance with this article. Please be firm in your thinking and do the corresponding risk control.