What is the S&P? | AvaTrade Tutorial

The S&P 500 which tracks 500 large cap US companies, is generally considered to be the best indication for how major US stocks are performing day to day. It is the benchmark by which many other investments are compared.

The U.S. stocks which make up the index account for around 80% of all market cap in the US, hence explaining why it is such a good picture for what is happening in the US markets. This index works on a weighted basis with the higher market cap firms taking up more weight in the index.

So, for example, Microsoft, which is the largest part of the index, has a market cap equal to around 5.6% of the index. This means around 5.6% of the index is dependent on Microsoft’s performance.

Unlike the Dow Jones Industrial Average, which is price-weighted, the S&P 500 is influenced more by the performance of larger companies that make up more of investors’ portfolios. As such it is considered a better gauge of how stocks are doing.

Main components of the index include Apple, Amazon, Alphabet and Facebook.

If you want to invest in the S&P 500, it’s not realistic to purchase shares of all 500 stocks. Rather, if you want to gain exposure you can invest in an S&P 500 index fund or indeed you can trade the S&P 500 Future as a CFD at AvaTrade.

This means you will be deciding whether you think the index value will move up or down. With CFD trading you can trade on both rising or falling markets, which is a benefit over stock trading. You can use the MT4, the MT5, the WebTrader or our AvaTradeGO app to trade the S&P500 here at AvaTrade.

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