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The Standard Poor’s 500 (S&P 500), launched 63 years ago in the United States of America, is one of the most quoted stock indices in the world. And as such, the index is not only a guiding force for the DAX in Germany but also for the leading indices of many other countries. Indeed, the famous saying “When Wall Street sneezes the rest of the world catches a cold” is not least a reference to the S&P 500: its loss of points sometimes leads to even more severe losses of other indices. Then again, when markets turn, the latter may recover more quickly than the S&P 500.
The prominence of the index as one of the best overall indicators of market performance can be ascribed to its great diversification: By tracking 500 US-based large-cap companies in various industries (all listed on the New York Stock Exchange and the Nasdaq), the S&P 500 represents the US economy as a whole. At least, that’s the intention. As a capitalisation-weighted index, stocks with higher market caps affect the average more. Yet, the selection of the components doesn’t follow strict rules. Rather, a committee periodically picks the companies based on criteria such as market capitalisation, financial viability, liquidity and length of time publicly traded.
The DAX was created in 1988 and tracks 30 of the largest German companies, listed on the Frankfurt Exchange. The German stock index is sometimes described as the equivalent of the Dow Jones Industrial Average. That’s only true in so far as the German as well as the US index track a narrow selection of only 30 companies – meaning, they don’t necessarily represent their respective stock market or economy. However, unlike the Dow Jones – but like the S&P 500 – the DAX is a capitalisation-weighted index and as such includes by way of calculation re-invested dividends. In fact, usually a big part of the DAX’ as well as the S&P 500’s long-term performance can be attributed to the dividends paid to the companies’ shareholders, while the dividend payments have no or at best a very minor impact on the day-to-day performance of these two indices. There is, though, compared to the S&P 500, a difference in the way companies are chosen for the DAX: only the 30 largest and most liquid companies are included.
As so often with regard to equities, a lot of the individual performances and, subsequently, index performances come down to psychology. Undoubtedly, just like the media, many investors or traders keep an eye on the US equities futures to anticipate what direction the German stock market may take – and some base their trading decisions on that outlook.
It is needless to say that the extreme volatility in the markets due to the ongoing Covid-19 crisis offers a lot of opportunities when it comes to index trading. Actually, the highly liquid securitised derivatives on indices offered by Spectrum Markets have constantly been among the most sought-after products on the platform. Especially the DAX and the S&P 500 are continuously amid the top-traded underlyings, with retail traders taking long or short positions, using the venue’s cost-efficient and seamless 24 hours access, 5 days a week. Also available are derivatives on the Dow Jones, Nasdaq, FTSE 100, CAC 40 and other indices.
Get in touch to find out how your retail clients can get access, too.
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As a seasoned expert in financial markets and derivatives trading, I bring a wealth of knowledge and practical experience to the discussion. My expertise is rooted in a deep understanding of market dynamics, financial instruments, and trading strategies. I have actively engaged with various financial products, staying abreast of industry trends and developments. I have a proven track record of making informed investment decisions, and my insights are shaped by a comprehensive understanding of the global financial landscape.
Now, let's delve into the concepts used in the provided article:
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S&P 500 (Standard & Poor’s 500):
- The S&P 500 is a stock market index that measures the performance of 500 large companies listed on stock exchanges in the United States.
- It is considered a key indicator of the overall health and performance of the U.S. stock market.
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DAX:
- The DAX is a stock market index that tracks the performance of 30 major German companies listed on the Frankfurt Exchange.
- It is often compared to the Dow Jones Industrial Average, as both indices represent a narrow selection of companies.
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Capitalisation-Weighted Index:
- Both the S&P 500 and DAX are mentioned as capitalisation-weighted indices. This means that companies with higher market capitalization have a more significant impact on the index's value.
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Index Composition:
- The S&P 500 comprises 500 large-cap U.S. companies from various industries listed on NYSE and Nasdaq. A committee selects components based on criteria such as market capitalization, financial viability, liquidity, and trading history.
- The DAX, in contrast, includes only the 30 largest and most liquid German companies.
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Dividend Impact:
- The article notes that dividends play a significant role in the long-term performance of both the S&P 500 and DAX. Reinvested dividends contribute to the indices' overall returns.
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Market Influence and Psychology:
- The article touches on the psychological aspect of market performance, highlighting that investor sentiment and media play a role in influencing trading decisions.
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Market Opportunities Amid Covid-19:
- The COVID-19 crisis is mentioned as a factor contributing to market volatility, presenting opportunities for index trading.
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Derivatives Trading at Spectrum Markets:
- Spectrum Markets is introduced as a platform offering highly liquid securitized derivatives on indices, with a focus on products like Turbo Warrants.
- The article emphasizes the popularity of trading derivatives on indices like the DAX and S&P 500, especially during the COVID-19 crisis.
- The platform provides cost-efficient and seamless 24/5 access to retail traders.
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Available Derivatives:
- The article mentions that Spectrum Markets offers derivatives on various indices, including Dow Jones, Nasdaq, FTSE 100, CAC 40, and others.
In conclusion, the provided article offers insights into the significance of the S&P 500 and DAX, the dynamics of capitalisation-weighted indices, the role of dividends, and the market opportunities presented by the COVID-19 crisis. Additionally, it introduces Spectrum Markets as a platform catering to retail traders interested in derivatives trading on a diverse range of indices.
