Top 5 Stock Market Indices to Trade

What are the Top 5 Stock Market Indices to trade?

A stock market is defined as the aggregation of buyers and sellers of stocks and shares.

An Index is a system to track the performance of a collection of certain assets in a standardised way.

So! A Stock market index is an index that measures a stock market!

So far so good?

Many people have heard terms like Footsie (not the game you played at school) Dow Jones and NASDAQ. But not everyone knows what those terms refer to. You may have seen the ‘Stocks’ app on your iPhone and not known exactly what you were looking at. Or heard that a stock market had crashed on the news etc etc

In this article, we are going to take a look at 5 of the most popular Stock Market Indices traded today.  We will provide you with a brief outline of each of the Indices and a taster of which stocks are covered within them. 

3 of these are in the States, one in Germany and last but not least we will look at the main Index in the UK!

Please click each of the Top 5 Stock Market Indices to Trade headings for a link to the futures product usually associated with each contract!

Let’s get to it and don’t forget to open your account here once you’re ready to tackle some Indices after reading through our list of Top 5 Stock Market Indices to trade!

1- Dow Jones (or the Dow Jones Industrial Average)

Spot 1 in our top 5 stock market indices to trade is The Dow Jones! The ‘Dow’ is a stock market index that is comprised of 30 of the largest companies listed in the US. It is usually the most traded index at brokers although its not said to be the best indicator of US stocks and shares and the US economy as a whole, because of its limitations of only looking at 30 Stocks. (the SnP500 for example looks at 500 stocks!)

The index is named DOW JONES after the 2 guys who created it. Charles Dow and Edward Jones and it’s one of the oldest stock markets still going strong today.

The stocks that are measured within the Dow Jones are known as ‘Blue-Chips’. Meaning they are amongst the largest and most successful companies in the US. The 30 stocks aren’t fixed and as certain companies become more and more profitable at the same time others start to perform badly, it’s possible that they will switch places. Basically, Companies drop out of the DOW and are replaced by more successful, larger companies. 

Lets have a look at the performance of the Dow over the past few years:

Here is the current list of DOW 30 stocks (correct at time of writing):

2 – S&P 500

Number 2, we have the SnP500 in our list of top 5 stock market indices to trade! As you’ve probably guessed – the S&P is an index that looks at the performance of 500 stocks in the US! It was introduced back in the mid-50s by Standard and Poor’s.

A committee selects the constituents of the index itself, which rebalance the index quarterly. This occurs in March, June, September and December.

Lets take a look at the top 5 largest sectors that the SnP500 covers:

• IT
• Healthcare
• Consumer Discretionary
• Communication Services
• Financials

Some of the FAANG stock are listed on the SnP500.

Lets take a look at the performance of the SnP500 over the past few years:

We obviously wont talk you through each of the 500 constituents of this index, but here is a list of the 10 largest companies within the SP500 which also make up over 25% of the index alone:

3 – NASDAQ (Nasdaq Composite)

The Nasdaq composite index is greatly weighted towards technological stocks and the overall Tech sector as a whole. Nearly all stocks listed on the Nasdaq stock exchanges are incorporated on the Nasdaq index. The index contains more than 2500 individual stocks!

To be selected for inclusion on the Nasdaq index a security must be list on the Nasdaq exchange solely OR be dual listed before 2004.

The following security types are permitted to be listed on the Nasdaq:

• Ordinary Shares
• Limited Partnership interest
• ADRs (American Depositary Receipts)
• Common Stock
• REITs (Real Estate Investment Trusts)
• Tracking Stocks
• SBISs (Shares of beneficial interest)

The following security types are NOT permitted to be listed on the Nasdaq:

• Convertible Bonds
• Closed-ended funds
• Preferred Stocks
• Rights
• Warrants
• ETFs (Exchange traded funds)
• Other derivatives

Being technology biased, the Nasdaq experienced a huge amount of growth during 1995 to 2000 (During the dot com bubble) This growth was in the region of 400%!

Some of the FAANG stock are listed on the Nasdaq.

Lets take a look at the performance of the SnP500 over the past few years:

Here are 10 of the largest stocks listed on the Nasdaq:

4 – DAX (Dax performance index)

Next in our list of top 5 stock market indices to trade, we have the DAX. This index is again a blue chip company but this time we are looking at a German index. Often known as the DAX30 index, it contains 30 of the largest companies listed on the Frankfurt Stock Exchange (These dax listed companies make up some 75% of the Frankfurt Exchange by market cap)

Again, this index can be used as a gauge of the health of the economy of the country it’s listed – Germany.

The top 3 sectors covered within the DAX are Materials, Consumer discretionary and Financials.

Lets have a look at the performance of the SnP500 over the past few years:

Here is a list of the current DAX30 constituents:

However, please note that the DAX30 is effectively becoming the DAX40 in the third quarter of 2021.

5 – FTSE100

Finally in Trading Halo’s list of top 5 stock market indices to trade we have The Footsie! The FTSE (Financial Times Stock Exchange) is an index containing 100 of the largest companies (by market cap) list on the LSE (London Stock Exchange) Like the Dow Jones – the companies listed on this index are considered as ‘Blue-Chip’.

You may wonder how the FTSE got its name? This is all down to who took ownership of it at the time. It used to be owned 50/50 by The Financial Times and the London Stock Exchange!

Whilst the FTSE100 is the most popular FTSE index. There are a few more that you should make yourself aware of. The FTSE250, the FTSE350, FTSE smallcap and the FTSE all-share.

The 3 largest sectors covered within the FTSE100 are Materials, Financials and Consumer Staples. Launched over 35 years ago (and starting at a price of 1,000, the index has now moved all the way up to the 6500 region, at time of writing)

Lets take a look at the performance of the SnP500 over the past few years:

Here are the current 30 largest constituents of the FTSE100:

Top 5 Stock Market Indices to Trade: Final Thoughts

• Indices can encapsulate a small amount of companies or a large amount (Think Dow vs SnP)
• These Indices can be used as a benchmark for other investments
• Indices are a good measurement of an economies overall health
• The Indices we have covered in the article cover mainly ‘blue chips’

If you would like to put your knowledge of the top 5 stock market indices to the test, please click here to open your trading account today!