What Does Stock Market Index Mean?

A stock market index is a measurement of the performance of a group of securities. You can’t trade an index, but you can trade financial instruments based on the index.

Such instruments include ETFs, mutual funds, and derivatives such as futures contracts, options, and Nadex binary options and spreads.

What is a stock market index?

Types of stock index

Stock indices are designed to reflect the stock market as a whole or some segment of it. For example, the S&P 500 stock index tracks the performance of the 500 largest US companies, the Nasdaq 100 features technology companies, and the Russell 2000 contains small-cap firms.

Some indices reflect the stock market of a particular country. The DAX is based on the German stock market. The Nikkei 225 includes the largest 225 publicly-traded companies in Japan. The FTSE 100 and China A50 similarly reflect the UK and Chinese markets. While these indices reflect stock markets, they don’t necessarily indicate the country’s economy as a whole.

Why trade indices instead of individual stocks?

The benefit of stock indices for the investor or trader is not having all your eggs in one basket. Invest in a single stock and your profit or loss is tied to one company’s fate, which could include mismanagement, competition, or changes in the marketplace. You could find yourself losing money on that stock even while the overall market is rallying.

Indexing tracks the performance of a group of stocks using a weighted average or similar calculation. You can invest indirectly in indices using instruments such as mutual funds, index funds, and exchange-traded funds (ETFs).

You can also trade derivatives like stock index futures, options, and binary options and spreads.

Which stock indices can I trade on Nadex?

You can trade these US stock indices: Stock indices: Dow®, S&P 500®, Nasdaq 100®, Russell 2000®

You can also trade these global stock indices: China A50®, FTSE 100®, DAX®, Nikkei 225®

Nadex offers binary options and spreads on all of these indices, with durations ranging from 20 minutes to weekly. They use stock index futures as their underlying market.

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