How to Trade Indices

Explore indices and the different ways to trade them—including contracts for difference (CFDs), exchange-traded funds (ETFs), and futures.

What Are Indices?

Indices—also known as stock market indices—are statistical measures that track the performance of a selected group of stocks. These stocks usually represent a specific market, sector, country, or asset class. Instead of following individual companies, indices provide a snapshot of how an entire segment of the market is performing.

For example, the S&P 500 Index tracks 500 large-cap US companies across sectors such as technology, healthcare, energy, and finance. As a result, it is widely used as an indicator of the overall health of the US equity market.

Indices act as benchmarks that reflect broader market sentiment and economic conditions. Traders and investors use them to gain diversified market exposure without the need to analyse or manage individual stocks one by one.

How Are Stock Market Indices Calculated?

Stock market indices are calculated using different weighting methodologies, depending on their design and purpose. The most common methods include:

Price-Weighted Indices

In a price-weighted index, stocks with higher share prices have a greater influence on the index’s movement. The Dow Jones Industrial Average is a well-known example. This approach does not account for company size or market value.

Market Capitalisation-Weighted Indices

Market cap-weighted indices assign more weight to companies with larger market values (share price × outstanding shares). The S&P 500 follows this method, meaning large corporations have a stronger impact on index performance.

Other Weighting Methods

Some indices use equal weighting or custom formulas. Regardless of the method, indices are regularly adjusted to account for stock splits, mergers, acquisitions, and changes in index composition.

Indices Trading Hours: Do Indices Trade 24 Hours?

Unlike individual stocks that trade only during local exchange hours, indices—when traded via CFDs or futures—are often available nearly 24 hours a day. This allows traders to react to global economic data, earnings releases, and geopolitical events across time zones.

Major Index Trading Hours (GMT)

Index	Trading Hours	Region
S&P 500 (US500)	23:00 – 21:00 (next day)	United States
NASDAQ-100 (NAS100)	23:00 – 21:00 (next day)	United States
Dow Jones (DJ30)	23:00 – 21:00 (next day)	United States
FTSE 100 (UK100)	01:00 – 21:00	United Kingdom
DAX 40 (GER40)	01:15 – 21:00	Germany
Nikkei 225 (JPN225)	00:00 – 06:00, 07:00 – 20:00	Japan

Note: Trading hours may vary by broker and may be affected by daylight saving time.

Extended trading access provides greater flexibility but also requires traders to stay informed about global news and economic developments.

How to Trade Indices: 4 Popular Methods

There are several ways to gain exposure to stock indices, each suited to different trading styles, time horizons, and risk profiles.

1. Cash Indices

Cash indices reflect the real-time spot price of an index and are commonly used for short-term trading. They often feature tight spreads but may incur overnight financing fees when positions are held beyond the trading day.

2. Futures and Options

Index futures and options are exchange-traded derivatives used for speculation and hedging.

Futures offer high liquidity and leverage.
Options provide flexibility with defined risk structures and strategic positioning.

These instruments are commonly used by professional and institutional traders.

3. Exchange-Traded Funds (ETFs)

ETFs track the performance of an index and trade like stocks on an exchange. For example, the SPDR S&P 500 ETF (SPY) mirrors the S&P 500. ETFs are generally preferred by longer-term investors seeking diversified exposure at lower costs.