CFDs. Indices.

Indices.

The economy of any state consists of a range of large companies, which indicates wealth and investment opportunities. Stock indices are also called stock price indices among traders. The index price is the average current price for the shares of all the companies that comprise the index. It is physically impossible to trade the index since this economic instrument was created to conveniently monitor the country’s economy. You can understand the economy's current stage or particular sector by monitoring the indices prices.

The Dow Jones Industrial Average (DJIA) – is one of the oldest, best-known, and most commonly used stock indexes worldwide. It includes shares of the USA's 30 most significant and influential companies, the so-called “blue chips.”

DJIA is known as a price-weighted arithmetic index. Initially, it was calculated by adding the share prices of each of the 30 companies and dividing the amount received by the number of companies (30) – which is why it is called “average,” that is, averaged. Unfortunately, over time, the simplicity of such calculations became impossible since the shares were split up and separated as new enterprises. As a result, the divisor from 30 decreased to 0.2 and is continuously reviewed. Changes in the value of the Dow index represent changes in the average investor’s expectations regarding the returns and risks of large companies. Since the general attitude towards large-cap stocks often differs from that of small-cap stocks, international or high-tech stocks, DJIA should not be used as an indicator that tracks expectations in other market areas, except for leading US companies or blue chips. Nevertheless, since the Dow Index consists of the most famous companies in the United States, the main direction of its trend corresponds to the direction of movement of the entire market, although not on the same scale.

The Standard & Poor’s 500 (S&P500) stock index is more extensive and diverse than the Dow Jones. It consists of 500 shares, which have the highest trading volumes and represents about 70% of the total value of the US stock market. In general, the S&P 500 is the best indicator of the movement of the entire US market. Since the S&P 500 is an arithmetic index, each share is presented proportionally to its total market capitalization. In other words, if the total market value of all 500 S&P 500 companies falls by 10%, the index will drop by 10%. For comparison, look again at DJIA, which indicated no equality in percentage terms. Many people see the S&P 500 as the best indicator of market dynamics since it is always more comfortable and more important to more accurately determine price changes not in terms of dollars, as the Dow Jones, but in percentages. Finally, the S&P 500 is oriented not only toward large and well-known companies. It is represented by various widely traded stocks from multiple sectors, including energy, industrial, information technology, healthcare, financial, and consumer goods.