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Invest in Stock Indices with Deriv

With Deriv, you can trade global stocks of your favorite household brands and international stock market indices.

Deriv’s stocks and indices offer competitively priced equities and asset baskets that you can trade outside the regular hours of major stock markets.

By opening an account with Deriv, you can invest in the following Stock Indices.

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Each of these indices replicates the performance of top publicly traded companies in a segment of the US economy, Asia/Oceania region, and Europe.

US 500
US 500 follows the stock performance of the 500 largest publicly-traded companies in the US.
US Tech 100
US Tech 100 follows the stock performance of the 100 largest non-financial companies in the US.
Wall Street 30
Wall Street 30 follows the stock performance of the top 30 listed companies in the US.
Australia 200
Australia 200 tracks the stock performance of the 200 largest listed companies in Australia.
Japan 225
Japan 225 tracks the stock performance of 225 large, publicly owned companies in Japan.
Netherland 25
Netherland 25 follows the stock performance of the 25 most traded companies in the Netherlands.
Euro 50
Euro 50 Index follows the performance of the 50 largest and most liquid stocks in the EU.
France 40
France 40 tracks the performance of the 40 most traded stocks among the top 100 listed companies in France.
German 30
German 30 follows the stock performance of the 30 major listed companies in Germany.
UK 100
UK 100 follows the stock performance of the top 100 listed companies in the UK.
Spain 35
Spain 35 follows the stock performance of the top 35 companies in Spain.

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What is a stock index?

The stock index is also called “stock index” or “stock index”.

It is often referred to as “stock index” in news reports, and the English name is “Stock Index”, which refers to measuring a certain stock market (or certain stocks in a certain stock market) A quantitative indicator of how good the market is.

The stocks included in a stock price index are generally referred to as the “constituent stocks” of the stock price index.

By comparing the value of the stock index in different periods, investors can better understand the changes in the stock market.

Generally speaking, an increase in the stock index represents an increase in the stock market (the market becomes better), and a decrease in the stock index represents a decline in the stock market (the market becomes worse).

In addition to showing the stock market, the stock price index is also a barometer of the industry’s prospects and the overall economy.

For example, the US Nasdaq 100 Index can be used to measure the performance of the US technology industry.

Another example is the CAC 40 index of France, which can show the economic performance of France and even Europe as a whole.

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How is stock index price calculated?

Although there are many calculation methods for the stock price index, in general, they are some kind of average value of the stocks it contains.

For example, suppose there is a stock price index called the X index, which contains the stocks of Amazon ($1,907.70 per share), Microsoft ($152.11 per share) and Apple ($240.91 per share).

The calculation method of the X index can be simplified as:

X index = (1,907.70 + 152.11 + 240.91) / 3 = 766.91

Every day, as the stock prices of these three companies fluctuate, the X index also fluctuates.

However, we will find that under this average algorithm, the lower the stock price, the smaller the influence on the X index.

For example, in the above situation, suppose that Microsoft’s stock price rose by 10% in a day, while the stock prices of the other two companies remained unchanged:

X index = (1,907.70 + 152.11 * 110% + 240.91) / 3 = 771.98

but if Amazon’s stock price rose by 10 %, and if the stock prices of the other two companies remain unchanged, the X index will be very different:

X index = (1,907.70 * 110% + 152.11 + 240.91) / 3 = 830.50 The sizes

of Microsoft and Amazon, both of which are technology companies, are similar.

Yes, but the same increase of 10% has resulted in two X-indexes that are quite different.

In order to solve this problem, many stock price indexes adopt the method of weighting the company’s market value before taking the average stock price.

In this case, as long as the company’s market capitalization is similar, even if the stock prices differ greatly, their influence on the stock index to which they belong will be similar.

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Types of Stock Index of the global exchanges

Faced with a dazzling array of stock price indices, investors tend to feel overwhelmed and do not know which ones to watch.

If the stock index is classified, investors can better understand which stock index can meet their investment needs.

In general, there are two classification methods, the first is based on the calculation method of stock indexes, and the second is based on the attributes of the constituent stocks.

If the constituent stocks are classified according to their attributes, there are two dimensions for classification.

The first dimension is the country to which the stock index belongs.

For example, the three major U.S. stock indexes (Dow Jones Industrial Average, Nasdaq 100, S&P 500) are all U.S. stock prices.

If you invest in U.S. stocks, you should focus Pay attention to these U.S. stock price indices.

And if you only invest in the Chinese stock market, then China’s stock price index such as the FTSE China A50 Index is more important.

The second dimension is the industry to which the stock index belongs.

For example, the Nasdaq 100 index mainly measures the technology industry in the United States, while the Russell 2000 index measures the performance of US small and medium-sized enterprises.

Pay attention to the relevant stock price index to make better judgments on the market.

For example, when the COVID-19 epidemic occurs in 2020, many well-known stock price indexes have fallen sharply, but the stock prices of pharmaceutical and biological companies have fallen slightly, and some have even risen.

By paying attention to the stock price index of the pharmaceutical and biological industry, investors who hold the stocks of these companies can understand that they can continue to hold positions at this time and there is no need for emergency selling.

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Why is stock index so important?

A stock index is often mentioned in financial news, among which major stock indexes such as Dow Jones Index and FTSE China A50 Index appear more frequently.

Although the importance of the stock price index is unquestionable, where are this importance embodied in concrete terms? From big to small, the importance of the stock index is mainly reflected in these three aspects: economic development, corporate value, and investment products.

The first point is to show economic development.

The stock price index can be a barometer of a country’s economy.

For example, the Standard & Poor’s 500 Index can more comprehensively reflect the performance of the US economy.

In 2008 and 2020, when the US economy was hit by the subprime mortgage crisis and the COVID-19 epidemic, the standard The Poole 500 Index has fallen sharply.

The historical trend of the S&P 500 Index (2008 and 2020 in the purple box)
The historical trend of the S&P 500 Index (2008 and 2020 in the purple box)

The second point is to reflect corporate value.

The trend of the stock price index can also reflect the development of companies in different industries/countries, and the performance of a company has a great impact on stock prices.

As a company’s performance rises, its stock price will also rise.

If several similar companies are compiled into a stock price index, the level of this index can reflect the changes in the value of these companies.

For example, when large American technology companies such as Apple Inc. have strong performance, the Nasdaq 100 index will also rise.

As shown in the chart below, in most cases, when Apple’s stock price (blue line) rises, the Nasdaq 100 index (orange line) also rises.

Apple's stock price and the Nasdaq 100 index nearly five years trend comparison
Apple’s stock price and the Nasdaq 100 index nearly five years trend comparison

The third point is to measure investment products.

Some stock price indices with many constituent stocks (such as the Standard & Poor’s 500 Index) can show the overall trend of the stock market.

Therefore, when choosing investment products, we can compare the return rate of the investment product with the return rate of the stock price index to make a better choice of Investment Products.

For example, an investment product may claim that its average rate of return in the past three years is as high as 15%, but in fact, most stock prices in the past three years have an average annual rate of return of 20%, which shows that this investment product has actually performed average.

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Why is Stock Price not perfect?

Although the stock price index is very important and widely used in various financial analyses, it is not perfect.

Here we mainly discuss the shortcomings caused by the calculation method, so we will describe it separately according to the category of the stock price index.

For the market value-weighted index, the high market value company has too much influence on the stock price index, that is, the greater the market value of the company to which the constituent stocks belong, the greater the influence it has on the stock index.

For example, the top 2% (10) companies in the US S&P 500 by market capitalization account for more than 25% of the total market capitalization of the index.

If the stock prices of these 10 companies fall by 10% at the same time, even if the stock prices of the remaining 490 companies remain unchanged, The S&P 500 index will also fall at least 2.5%.

There is a view that this will aggravate herd behavior in the market, that is, when the stock price of a large market capitalization company rises/falls, the market value-weighted index will overreact the overall market trend, so people tend to buy/sell in a swarm.

For price-weighted indexes, the high unit price and high constituent stocks have too much influence on the stock price index, that is, the higher the unit price of the constituent stocks, the greater the influence it has on the stock index.

In theory, if a price-weighted stock price index contains a company with a small market value but a very high stock price, then small fluctuations in the company’s stock price will cause the stock index to fluctuate greatly.

But in reality, since only a few mainstream stock index indexes use price-weighted algorithms ( Dow Jones Industrial Index, etc.), and the constituent stocks in these stock indexes are carefully selected large-capitalization companies, the criticism of price-weighted stock index The main focus is that it cannot accurately reflect the overall changes in the stock market from the perspective of market capitalization.

In addition, the price-weighted index tends to underestimate the company’s influence after the constituent companies split their stocks.

Because after the company undergoes a stock split, the new stock price will generally decrease (with the market value unchanged), and the price-weighted index only calculates the weight of the constituent equity based on the stock price, so the company’s influence on the stock index will be lower.

The market value-weighted index does not have this problem.

In general, no stock price index or stock price index is perfect, and no stock price index can fully reflect the trend of a stock market.

Most of their advantages and disadvantages are complementary.

Only by combining multiple stock price indexes can we make a comprehensive judgment.

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