In practice
Indices show what a whole market is doing, so traders read them first to judge the mood of the day. The S&P 500 covers 500 large US companies and the Nasdaq-100 leans heavily towards technology.
Because an index is spread across many companies, a single piece of company news rarely moves it far. It responds more to economic data, interest rates and overall risk appetite, which gives index futures cleaner technical behaviour than many single stocks.
What to watch for
The big US indices are weighted by company size, so a handful of very large companies can drive the whole number. The index can rise while most of its members fall.
Related terms
5 terms- ETFA fund that trades on an exchange like a stock and tracks an index, sector, commodity or theme.
- Futures contractA standardised agreement to buy or sell something at a set price on a future date, traded on an exchange.
- Micro futuresFutures contracts one tenth the size of the standard ones, so smaller accounts can size positions properly.
- StockA small piece of ownership in a company, traded on an exchange.
- Nifty 50The benchmark index of India's National Stock Exchange, tracking 50 of the largest companies listed on it.