In addition to reflecting the overall performance of the stock market, stock indices have also become a popular investment option in recent years. This article will introduce the ten major global stock indices, trading hours, and commonly used index trading products.
Tracking the entire stock market or every stock in a specific group is a very difficult and overly complicated task. Therefore, in order to facilitate investors to easily compare their investment returns and track stock market trends, each region's stock market will take a more representative "sample", calculate the average stock price, and formulate a stock index.
Several factors need to be considered when constructing an index. The first is how to extract 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. Next, the calculation method must be consistent. With the evolution of the times, the calculation method is widely assisted by computer technology, and adjustments are constantly made to better match the accuracy and sensitivity of the stock index.
There are two common weighted stock price algorithms – price-weighted and market capitalization-weighted.
The stock prices in the index are weighted, and the disadvantage of this method is that constituent stocks with smaller market capitalization but higher stock prices will have a greater impact on the index.
The most commonly used method for most indices is to determine the weight according to the market value of each company. The rise or fall of the company with the largest market value will cause greater fluctuations in the index.
The Dow Jones Industrial Average (hereinafter referred to as the Dow Jones Index) is the most well-known and oldest index in the world. It is also one of the commonly used indices that investors pay attention to. It includes the stocks of 30 most influential large companies in the United States. Initially, the Dow Jones Index used a simple average algorithm, adding up the closing prices of all component stocks and dividing by the total number of companies to get the average. However, this method would cause discontinuity when the rights and dividends were deducted. Therefore, the divisor correction method was used to calculate the index to correct the changes caused by factors such as stock splits, capital increases, and dividend payments, so that the average remains continuous and comparable.
The Dow Jones Index accounts for about a quarter of the value of the U.S. stock market, but due to the way it is calculated, the index is more susceptible to the influence of high-priced stocks and will deviate slightly from the overall market. It is not recommended to view it as an indicator of the fluctuations of the entire U.S. stock market. The constituent stocks include many large multinational companies, which will be more affected when the global economic outlook is bleak. It can also reflect investors' judgment on the global economic outlook.
The S&P 500 index is selected by a committee. The 500 top public companies in the United States have their constituent stocks changed regularly, taking into account size, liquidity and profitability. It covers industries such as technology, finance, and information. The weights of constituent stocks are adjusted using the market capitalization weighting method. The rich industry makes it widely regarded by investors as the best indicator for measuring large U.S. stock markets. The index accounts for approximately 80% of the total value of the U.S. stock market and can therefore reflect U.S. market trends well.
The Nasdaq 100 Index (hereinafter referred to as the Nasdaq Index) does not restrict companies to be domestic US companies, so it includes international listed companies, but there are regulations that they must be non-financial stocks. The constituent stocks include 100 non-financial listed stocks, and the weights are adjusted according to the market capitalization weighting method. The Nasdaq Index cannot effectively diversify risks because its main composition is biased towards technology stocks. It is a representative index of US technology stocks and an indicator of global technology stocks.
The German DAX index, also known as the Frankfurt Index, is one of the three major stock indices in Europe. The index covers a total of 30 major German companies in many industries. The index is calculated using the total return method, which refers to the company's stock price while also considering the expected dividend return. Therefore, this index can be interpreted as a blue-chip stock index.
The FTSE 100 Index was first launched by the Financial Times and the London Stock Exchange. It is one of the three major stock indices in Europe. It includes 100 companies listed on the London Stock Exchange with the largest market capitalization. The weight of the constituent stocks is calculated by market capitalization, and the market capitalization accounts for about 81% of the London Stock Exchange. Therefore, it is considered by investors to be the best index for judging the status of the British stock market. However, in recent years, the number of international companies included in the index has increased, so it is gradually no longer regarded by the market as an indicator for judging the British economy.
The CAC 40 index in Paris, France, includes the top 40 companies by market capitalization on the Paris Stock Exchange. Weights are allocated based on market capitalization, and industry distribution is evenly distributed. In order to avoid a continuous increase in market capitalization and excessive concentration of weights, the index has a maximum weight limit of 15%.
The Euro Stoxx 50 Index is a market capitalization-weighted index of 50 blue-chip stocks listed in EU member states such as Germany and France, with a maximum weighting of 10%. The index covers many industries such as banking, utilities, insurance, telecommunications, and energy.
The Nikkei Average, also known as Nikkei 225, is based on the stock prices of the 225 most active and liquid stocks on the Tokyo Stock Exchange. It is calculated using the modified arithmetic mean and accounts for approximately 60% of the trading volume of the first category of the Tokyo Stock Exchange and nearly 50% of the total market value. It has therefore become an important indicator for investors to refer to the Japanese economy.
The Hang Seng Index is an important indicator reflecting the Hong Kong stock market. It is composed of 50 Hong Kong blue-chip stocks. In the early days, it was a standard for measuring the Hong Kong economy. Now, due to the high correlation between Hong Kong and China, it is one of the options for investing in China.
The China A50 Index includes the 50 A-shares with the largest market capitalization listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A-shares refer to RMB-listed stocks that are registered and listed in China and traded in RMB. This index can reflect the Chinese A-share market and is also one of the important bases for international investors to measure the Chinese market.
Index investment can take advantage of the concept of holding an investment portfolio at a low cost. Holding an index can avoid individual stock risks. Most indexes will try to enrich the industry distribution to achieve the effect of dispersing non-systematic risks. Both long and short positions can be operated, making investment efficient, so trading indexes are popular among investors.
Although trading indices have many advantages and have been favored by investors in recent years, trading indices cannot bring absolute success. It should be noted that the indexes will still be seriously damaged when encountering a systemic risk outbreak. Many indices are constructed using market capitalization weights, so the fluctuations of large companies often have a significant impact, while ignoring the original direction of the overall market.
Index stock funds (ETFs) are a major form of passive investment. Index fund managers select index constituent stocks and establish weights that are exactly the same or roughly the same as the index, allowing investors to purchase them, just like selecting eligible stocks in the stock market to build an investment portfolio.
A contract for difference (CFD) is a form of derivative transaction between buyers and sellers. CFD can be traded in both directions. Investors can use this product to predict the rise and fall of financial market prices and profit from it. Trading index CFDs is cheaper than trading stocks and futures, and is favored by short-term investors who love to operate.
Most index trading is almost 24 hours a day, but after the main trading hours, there will be a problem of insufficient liquidity causing the spread to widen. Therefore, we can avoid this situation by trading during the main trading hours. The figure below shows the main trading hours of each index market, mainly based on ET (Eastern Time) and GMT (Greenwich Mean Time).
| index | Main opening hours (ET) | Main closing period (ET) | Main opening hours (GMT) | Main closing period (GMT) |
| Dow Jones 30 | 9:30 | 16:00 | 15:30 | 22:00 |
| S&P 500 | 9:30 | 16:00 | 15:30 | 22:00 |
| Nasdaq 100 | 9:30 | 16:00 | 15:30 | 22:00 |
| German DAX30 | 2:00 | 14:00 | 8:00 | 20:00 |
| UK FTSE100 | 3:00 | 11:30 | 9:00 | 17:30 |
| French CAC40 | 3:00 | 11:30 | 9:00 | 17:30 |
| Euro Stoxx 50 | 2:00 | 14:00 | 8:00 | 22:00 |
| Nikkei 225 | 18:00 | 1:30 | 00:00 | 7:30 |
| Hang Seng Hong Kong | 18:30 | 3:00 | 00:30 | 9:00 |
| China A50 | 18:30 | 2:00 | 00:30 | 8:00 |
All financial products traded on margin carry a high degree of risk to your capital. They are not suited to all investors and you can lose more than your initial deposit. Please ensure that you fully understand the risks involved, and seek independent advice if necessary.