The Stock Market Indices

The stock market indices represent one of the most important asset sectors, as much for the traditional investors as those that trade online.

There are however different types of stock market indices, each has specific operational particularities.

What are stock market indices?

The stock market indices, as indicated by their names, most often represent the performance of one stock exchange or market. Three different types of indices can be identified:

• The major indices: These take into account the performance of a particular stock exchange or stock market. Its calculations take into account certain criteria relating to all the large companies quoted on this particular stock market. For the London Stock Exchange, the FTSE 100 is the major index.
• The indices for sectors: In these cases, these indices correspond to the performance of a certain sector of activity such as new technology, or businesses of the same size. They are calculated by taking into account all the companies of one or several stock markets that correspond to certain pre-established criteria. The Nasdaq is one such example.
• The regional indices: These highly resemble the major indices but can correspond to several financial markets in the same geographical zone. This is the case for example with European indices such as the EURO STOXX or certain American indices such as the Dow Jones.

The major stock market indices worldwide:

There are numerous stock market indices throughout the world, the majority group together the most profitable companies of a country or geographical area, others are composed of companies from a particular industry or activity. Of course, all the world stock market indices are not accessible online from trading platforms. Here are the major indices that you can easily access with the majority of online brokers:

• The CAC 40 which is the French index.
• The DAX 30 which is the German index.
• The FTSE which is the British index.
• The FTSE MIB which is the Italian index.
• The AEX which is the Dutch index.
• The SMI which is the Swiss index.
• The IBEX 35 which is the Spanish index.
• The Dow Jones, the NASDAQ, and the S & P, which are American indices.
• The Nikkei which is the Japanese index.
• The Shanghai Composite which is the Chinese index.

How are the stock market indices calculated?

For the most part, the stock market indices are calculated from the accumulated stock market capitalisation of all the companies listed on a stock market or in a sector of activity. The result is then divided by a value fixed at the creation of an index. Its rate changes over time according to the purchases.

However increasing numbers of indices only take into account the unique part of a company that can be exchanged on the stock market in the form of assets, the ‘shares’. Of course, other factors are also taken into account in the calculations of an index to make it as representative as possible, such as the volume exchanged, the share value and the capitalisation.

Generally, the indices are calculated several times using different methods. In the case of the stock market these calculations include the prices and for the placements, they include the dividends.

How to speculate on the stock market indices?

For a few years now, it has also been possible to speculate on the major stock market indices using online trading platforms, through the online ‘brokers’.

Of course, this method of speculation carries higher risks than placements and is more particularly suited to investors who understand how the stock market indices function and can complete analyses.