What are stocks and stock indices? S&P 500, Nasdaq and Dow explained
A stock is a share of ownership in a company, and an index tracks a group of stocks. Learn about the S&P 500, Nasdaq 100, Dow Jones and how traders trade indices.
Contents
When you buy Apple shares, you own a tiny slice of Apple. If the company grows and earns more, the share price usually rises; if business turns bad, it falls. That is the basic idea of the stock market.
What is a stock?
A stock is a certificate of ownership in part of a company. Companies list their shares on an exchange to raise capital, and investors buy them. Shareholders make money in two ways: share price gains and dividends, which some companies pay every year.
What is a stock index?
Nobody can track thousands of stocks one by one, so indices were created: a single number showing whether a group of important stocks has risen or fallen overall.
| Index | What it tracks |
|---|---|
| S&P 500 | 500 large US companies; the main US stock benchmark |
| Nasdaq 100 (NAS100) | 100 large non-financial companies, heavy in tech |
| Dow Jones (US30) | 30 long-established large US companies |
| STOXX 600 | 600 large European companies |
Why indices matter to forex traders
Stocks are a thermometer for risk appetite. When equities rally, money flows into riskier assets such as the Australian dollar. When stocks fall, the Japanese yen, Swiss franc and gold usually strengthen. Even if you only trade currency pairs, keep an eye on the S&P 500 and Nasdaq.
How can you trade an index?
You cannot buy the index itself, but there are three common routes:
- CFDs with a broker: such as US500 or NAS100 on MetaTrader, long or short with leverage.
- ETFs: such as SPY, which tracks the S&P 500.
- Futures: for more advanced traders.
What moves stock prices?
Quarterly earnings, interest rates, inflation and jobs data, and the overall economic mood. When the Federal Reserve raises rates, for example, tech valuations usually come under pressure.
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Trading financial markets involves risk. This article is educational and is not investment advice.
Forex and CFD trading carries a high level of risk due to leverage and you may lose more than your initial capital. Content on this site is educational and not investment advice.
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