World stock indices

Stock indices are, in simple terms, numbers that show the total value of a set of underlying stocks included in the index. The main stock indices (stock indices of the countries of the world), among others, include the following:

1. S&P 500
2. Dow Jones
3. Nasdaq
4. FTSE100
5. Nikkei225
6. DAX
7. CAC40
8. Euro Stoxx 50
9. ASX200

Most often, stock indices are a number that characterizes the state of the stock market as a whole – the market in which the shares of the companies included in the index are represented. Most often, indices are composed of shares of the largest (by capitalization) companies.

During a trading session, the prices for shares of individual companies are constantly changing. Since a stock index is a “basket” of underlying stocks, as the price of individual stocks changes, the price of the index also changes (it is calculated based on mathematical and statistical formulas). Below are some aspects of stock index trading that are useful to remember and know.

1. Before being included in the index (for example, Dow Jones) all stocks are tested. The structure of the index can change, i.e. a separate company in the index can be replaced by another one if the dynamics of the “new” stock is better than the “old” one. In other words, no one can guarantee that the companies, included in the index at the moment, will stay there forever.
2. The decision on the weight value of an individual stock in the index is made based on calculations and some rules. Not all stocks added tothe cart have the same weight. In other words, the total price of a stock index is not just a number obtained by summing all stock prices and dividing by a number of companies in the index.
3. The stock index characterizes the market as a whole. It has a certain value and can be considered an indicator of the entire stock market.
4. As already mentioned in paragraph 2, since not all shares included in the cart have the same weight, more weight is given to companies with a larger capitalization. This means that if a share of any large company falls in value, the entire index will also fall, even if other shares in the cart do not fall in value.
5. In paragraph 1 we have already mentioned that the prices of the basic shares that are included in the cart (index) change over time. The structure of the index may vary over a certain period of time.