Explore the Top 10 Global Stock Indices and Essential Trading Knowledge

Why Are Global Stock Market Indices Important?

Stock markets have become an inseparable part of the global economy. Stock indices not only reflect the economic performance of countries but also serve as preferred investment tools for millions of investors worldwide.

In the United States, the trio of indices S&P 500, Dow Jones (DJIA), and Nasdaq Composite are used to evaluate the entire US economy. Each index represents a different aspect of the market, helping investors gain a comprehensive view of the economic situation.

What Is a Stock Index?

A stock index is a measure of the economic performance of a sector or country, composed of Blue Chip stocks – the companies with the highest market capitalization in each country.

For example, the FTSE 100 index includes the 100 largest companies by market cap on the London Stock Exchange, or Vietnam’s VN30 index is calculated based on the top 30 companies on the Ho Chi Minh Stock Exchange. Investors can consider buying an index as investing in a diversified portfolio, rather than analyzing and selecting individual companies.

Advantages of Investing in Global Stock Market Indices

Time and Effort Saving

Indices are selected from large, financially stable companies. If you lack extensive experience analyzing stocks or do not want to spend too much time researching individual companies, investing in indices is the fastest and most effective way.

Higher Returns with Lower Risks

Studies show that investing in the S&P 500 index over 50 years yields a steady annual return of about 7% (after inflation adjustment). This return rate is much higher than traditional bank interest rates.

Diversified Investment Portfolio

Each index typically includes 30 to 100 companies. When one stock declines, others may rise, so the index’s price volatility is usually lower than that of individual stocks, providing higher safety for passive investors.

The 10 Most Traded Global Stock Indices

US Index Group

#1 – S&P 500

The S&P 500 is the most traded index, composed of the 500 largest US companies including Apple, Microsoft, Amazon. Launched in 1950 with a value below 10 points, it has now reached 2955.45 points, increasing by 296 times.

Despite experiencing economic crises such as 1929-1932 (losing over 50% of its value) or 2008 (losing 37%), the S&P 500 has maintained a long-term upward trend, reflecting the sustainability of the US economy.

#2 – NASDAQ 100

NASDAQ is famous as the exchange of technology companies, including giants like Booking Holdings, Facebook, eBay. This index also includes foreign companies such as JD.com and NetEase from China.

Unlike the S&P 500 or Dow Jones which only include large-cap companies, NASDAQ 100 also includes smaller, more speculative companies. Therefore, its volatility often more clearly reflects the performance of the tech sector.

#3 – DJIA (Dow Jones)

Dow Jones is calculated from 30 of the largest companies on all US stock exchanges, including Apple, Intel, Goldman Sachs. Along with the S&P 500, it is one of the most important indices in the US market.

Dow is known for listing the best blue-chip companies with stable dividends. As of 2021, it has undergone 54 changes in its component companies, with General Electric being the longest-standing before being replaced in 2018.

European Index Group

#4 – FTSE 100

FTSE 100 started on January 3, 1984, with an initial value of 1000 points. By 2000, it increased to 7103.98 points, a 7-fold increase over 16 years.

During the 2007-2010 financial crisis, FTSE 100 dropped to a low of about 3500 points. In March 2017, it reached a record 7777.62 points in a trading session.

#5 – DAX40

DAX was launched in 1987 with an initial level of 100 points. It has grown remarkably, now reaching 11,391 points, an increase of over 10,000% in 33 years. DAX40 is often called the “Dow Jones of Europe.”

#6 – CAC 40

CAC 40 was launched in 1987 with an initial 1000 points, including major companies like Hermès, Accor, BNP Paribas. The index peaked in September 2000 at 6922.33 points during the dot-com bubble.

Companies in CAC 40 are evaluated quarterly based on free-float market capitalization and 12-month revenue. From the top 100 companies, 40 are selected to participate in the index.

#7 – Euro Stoxx 50

Euro Stoxx 50 was launched in 1998, comprising 50 stocks with the highest liquidity and market capitalization in the Eurozone. It is one of the most liquid indices in the region and serves as a good benchmark for fund performance.

The index reached its peak in 2000 at 5464 points. After the crises in 2000 and 2008, it lost significant value and gradually recovered, but has not yet returned to its previous high.

Asian Index Group

#8 – Nikkei 225

Nikkei 225 started in 1950, reaching its peak in 1989 during Japan’s real estate bubble at 38,957 points, a 600% increase over a decade.

Subsequently, the index lost nearly all these gains. In the last 3 years, Nikkei fluctuates between 14,000 and 26,000 points, reflecting Japan’s ongoing economic difficulties.

#9 – Hang Seng

Hang Seng was launched in 1969 with a base value of 100 points. It first surpassed 10,000 points in 1993, then 20,000 in 2006. In less than 10 months, it exceeded 30,000 points in October 2007, reaching an all-time high.

The 2007-2008 financial crisis caused Hang Seng to lose 30% of its value but quickly recovered to 20,000 points in 2008. Since then, the index fluctuates around 20,000 and has yet to break back above 30,000 in 2007.

#10 – KOSPI

KOSPI was launched in 1980 with an initial 100 points. Its fluctuations reflect the performance of companies listed on the Korean stock exchange, including Samsung, Hyundai, Naver.

The index surged during 1985-1988. Despite economic crises over the years, KOSPI’s decline has been moderate, and the long-term trend remains upward.

How to Trade Global Stock Market Indices

To trade global stock indices, investors can use CFDs (Contracts for Difference). Unlike direct investment in indices, CFD trading allows profit regardless of whether the index rises or falls.

Real Example:

Suppose NASDAQ 100 is trading at 9579 points. You believe tech companies will increase in value due to rising demand for technology applications. You open a buy position (Buy). Conversely, if you think the price will decrease, you can open a short position (Sell).

A major advantage of CFDs is the use of leverage to increase profits. For example, with 1:10 leverage, each 1-point increase in NASDAQ 100 yields a profit of $10.

If NASDAQ 100 rises from 9579 to 9700 points, profit will be ((9700 - 9579) × 10 = 1,210 USD). Similarly, if the price drops, the investor will incur a corresponding loss.

Tips for Trading Global Stock Indices

Choose Highly Liquid Indices

Indices with high liquidity help reduce spread costs, increasing profit opportunities.

Research Macroeconomic Conditions

Before investing, understand the macroeconomic situation of the country, such as GDP, key economic events, and political stability. This helps you forecast index trends more accurately.

Focus on 1-3 Main Indices First

Instead of spreading out, concentrate on 1-3 key indices before diversifying. Since indices tend to rise in stable economies, focus on initial long (buy) positions.

Learn Technical Analysis

Stock markets are cyclical, and price movements often repeat. Learning technical analysis helps identify important patterns and optimize trading decisions.

Conclusion

Global stock indices are fundamental investment products you need to understand if you decide to participate in international stock markets. From the S&P 500 in the US to KOSPI in Korea, each global index has its own value in your investment portfolio.

By thoroughly researching each index, understanding CFD trading mechanisms, and applying suitable strategies, you can build a sustainable investment plan in the global stock market.