Indices: The Key to a Lucrative Portfolio

Understanding Stock Market Indices:


You hear about this Dow Jones all the time. When people refer to trading, they often say, “Oh, I know about the Dow Jones.” But do you really grasp the concept of the Dow Jones? Why has this name become so popular in the financial industry? And if it’s so widely recognized, why not explore trading opportunities related to it?


In the complex world of financial indices, the Dow Jones Industrial Average, often referred to as the Dow, holds a special place. It’s not just a number that fluctuates on a screen; it’s an metre of the American economy. Comprising 30 of the largest and most influential publicly traded companies in the United States, the Dow Jones represents a diverse range of industries, from technology giants to manufacturing titans and financial powerhouses. Its performance is considered a key indicator of how well these blue-chip companies, collectively known as the ‘Dow 30,’ are faring in the stock market. But what makes the Dow Jones truly fascinating is its remarkable history, which stretches back over a century. Understanding its origins and evolution is crucial to appreciating why it continues to captivate the attention of traders, investors, and financial enthusiasts worldwide.


The Dow Jones is part of a group of financial indicators known as indices. These indices are like trackers for various types of assets, such as stocks, allowing people to invest in a whole group of assets at once.



Different indices distinct categories of assets.  For example, the ASX 200 Index (AUS200) closely follows the performance of the 200 largest companies listed on the Australia Securities Exchange. The FTSE China A50 (China50) Index examines stocks selected from the Shanghai and Shenzhen Stock Exchanges in China.

Indices help us see how a group of stocks are performing, rather than just looking at one company’s performance. They give us a bigger picture of how the whole market is doing, and you’ve probably heard about them on the news or seen them called things like stock indices or share indices.

Indices play a vital role in providing insight into the collective performance of a group of stocks. Instead of focusing on an individual company’s performance, they offer a comprehensive view of the overall market dynamics. You’ve likely encountered them in news reports or heard them referred to as stock indices or share indices.


Here are some of the most well-known indices:



Wall Street – The Dow Jones: Wall Street, which often relates to the Dow Jones, represents the heart of American finance. This index keeps tabs on 30 major companies, such as Apple, Intel, Exxon Mobil, and Goldman Sachs, traded on the New York Stock Exchange. These companies serve as indicators of the U.S. economy’s health.

S&P 500 – The US Market Barometer: Think of the S&P 500 as a thermometer for the U.S. stock market. It closely watches over 500 big companies, listed on both the New York Stock Exchange and NASDAQ. This index gives us a snapshot of how well the entire U.S. economy is performing.

FTSE 100 – Britain’s Financial Picture: In the UK, the FTSE 100 acts as a window into the country’s financial landscape. It tracks the largest companies listed on the London Stock Exchange, with a focus on sectors like mining, energy, and finance. By looking at the FTSE 100, we can gauge how well the UK economy is doing.

DAX – Germany’s Economic Indicator: For Germany, the DAX serves as a key economic indicator. It keeps an eye on the top 40 companies on the Frankfurt Stock Exchange, spanning financial, automotive, healthcare, and chemical sectors. Major players like Allianz, BMW, Bayer, and Siemens lead the way. Monitoring the DAX helps us understand the state of Germany’s economy.

Nikkei 225 – Japan’s Economic Pulse: In Japan, the Nikkei 225 acts like a pulse check for the economy. This index monitors 225 companies listed on the Tokyo Stock Exchange, providing insights into Japan’s financial well-being.


How are stock market indices calculated?


Stock market indices are calculated in different ways, depending on the type of index and the goals of the index provider. Some common methods include:

Price-weighted: This method gives more weight to stocks with higher share prices. The Dow Jones Industrial Average is a price-weighted index.

Market capitalization-weighted: This method gives more weight to stocks with larger market capitalizations. The S&P 500 is a market capitalization-weighted index.

Equal-weighted: This method gives equal weight to all stocks in the index. The S&P 500 Equal Weight Index is an equal-weighted index.


How are indices compiled?

Indices are compiled by committees that set the criteria for companies to be included in the index. These committees meet regularly to review the index rules and decide whether to add or remove companies.

Types of indices

There are many different types of stock indices, including:

Global indices: These indices track the performance of stocks from all over the world. The MSCI World Index is a global index.

Regional indices: These indices track the performance of stocks from a particular region. The S&P Europe 350 Index is a regional index.

National indices: These indices track the performance of stocks from a particular country. The FTSE 100 is a national index.

Exchange-based indices: These indices track the performance of stocks listed on a particular exchange. The NASDAQ 100 is an exchange-based index.

Industry indices: These indices track the performance of stocks from a particular industry. The S&P 500 Information Technology Index is an industry index.

Currency indices: These indices track the performance of a particular currency against a basket of other currencies. The US Dollar Index is a currency index.

Sentiment indices: These indices track the level of investor sentiment towards a particular market or asset class. The VIX is a sentiment index.

What moves the index price?

The factors that move the price of an index can vary depending on the type of index. However, some common factors include:

Economic news: Economic data, such as GDP growth and interest rates, can affect the price of stock indices.

Company earnings: The release of company earnings reports can also move stock indices.

Political events: Political events, such as elections and wars, can also affect stock indices.

Commodity prices: Commodity prices can also affect the price of stock indices, especially those that track commodity-related companies.

Investor sentiment: The overall mood of investors can also affect the price of stock indices.


Why trade indices with CMTrading?

CMTrading is a leading CFD broker that offers a wide range of indices CFDs to trade. They also offer competitive spreads and leverage, making it a good choice for traders of all experience levels.

Wide range of indices CFDs: CMTrading offers a wide range of indices CFDs to trade, including the Dow Jones Industrial Average, the S&P 500, the NASDAQ 100, and the FTSE 100.

Competitive spreads: CMTrading offers competitive spreads on indices CFDs, making it a good choice for traders who want to minimize their costs.

High leverage: CMTrading offers high leverage on indices CFDs, which can magnify your profits but also your losses.

Advanced trading platform: CMTrading offers an advanced trading platform that is easy to use and provides a variety of features for traders.

24/7 customer support: CMTrading offers 24/7 customer support in multiple languages, so you can get help whenever you need it.


Indicate me how to trade indices:

Here are the steps on how to trade indices with CMTrading:


  1. Open a trading account: The first step is to open a trading account with CMTrading. You can do this by visiting their website and clicking on the “Open an Account” button.
  2. Fund your account: Once your account is open, you will need to fund it with money. You can do this by using a variety of methods, such as credit card, debit card, or bank transfer.
  3. Choose an index CFD to trade: CMTrading offers a wide range of indices CFDs to trade. You can choose the index that you want to trade based on your own preferences and risk appetite.
  4. Place a trade: Once you have chosen an index CFD to trade, you can place a trade. You can do this by entering the amount of money you want to trade and the direction you think the market will move.
  5. Monitor your trade: Once you have placed a trade, you will need to monitor it to see how it is performing. You can do this by using the CMTrading trading platform.
  6. Close your trade: When you are ready to close your trade, you can do so by clicking on the “Close” button.

Here are some additional tips for trading CFDs with CMTrading:

  • Use a demo account: Before you start trading with real money, it is a good idea to use a demo account. This will allow you to practice trading without risking any money.
  • Learn about the risks: Trading CFDs is a risky activity and you could lose money. It is important to learn about the risks involved before you start trading.
  • Use stop losses: A stop loss is an order that automatically closes your position if the price reaches a certain level. This can help to limit your losses if the market moves against you.
  • Take profits: When you are in profit, it is important to take profits and lock in your gains.


Strategies for trading index CFDs:

  • Long: A long position is a bet that the price of the index will go up. To enter a long position, you would buy the index CFD.
  • Short: A short position is a bet that the price of the index will go down. To enter a short position, you would sell the index CFD.
  • Copy trading: CMTrading ‘s tool copykat is a way to automatically copy the trades of a successful trader. This can be a good way to get started with trading CFDs if you are new to it.
  • Signals are alerts that are sent out when a certain trading condition is met. For example, a signal might be sent out when the price of an index reaches a certain level or when the momentum of the market changes. Signals can be a helpful way to find trading opportunities and to avoid missing out on good trades.
  • Instant price notifications are sent out as soon as the price of an index changes. This can be helpful for traders who want to stay up-to-date on the latest market movements. Instant price notifications can also be used to set stop losses and take profits, which can help to limit losses and maximize profits.



The AI-powered tools offered by CMTrading can help traders to make more informed trading decisions and to avoid human error. These tools can be a valuable asset for traders of all experience levels.

Here are some of the benefits of using CMTrading’s AI-powered tools:

  • They can help you to identify trading opportunities that you might not have otherwise seen.
  • They can help you to avoid human error, such as making a typo in a trade order.
  • They can help you to stay up-to-date on the latest market movements.
  • They can help you to set stop losses and take profits, which can help to limit losses and maximize profits.


The world of indices can be complex, but it is also an exciting and rewarding place to invest. By understanding how indices are calculated and how they can be traded, you can gain a valuable perspective on the stock market and the global economy.

If the idea of trading indices intrigues you, consider CMTrading as your starting point. They provide a diverse selection of indices CFDs for trading, coupled with competitive spreads and leverage. Their advanced trading platform empowers you to closely monitor your trades and make well-informed decisions.

So what are you waiting for? Download the CMTrading app today and start trading indices on the go!




CMTrading is a regulated South African online trading broker that offers a diverse range of financial products and services. It specializes in granting access to trading in various markets, including forex, commodities, indices, and cryptocurrencies. CMTrading aims to provide a user-friendly trading experience by offering both beginner-friendly features and advanced trading tools for experienced traders. With a focus on customer support and education, CMTrading provides resources such as webinars, tutorials, and personalized assistance to help traders make informed decisions.



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