What Are Indices? How Stock Indices Work and How to Trade Them

An index is one number that tracks the prices of a basket of shares, such as US500, which tracks 500 large US companies. Traders take a position on an index rising or falling with a CFD, quoted in index points, without owning any of the shares.

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Last updated 26 October 2026

Indices are numbers that track the prices of a group of shares, so one figure shows how a whole market or sector is doing. The S&P 500 tracks 500 large US companies, the FTSE 100 the 100 largest companies on the London Stock Exchange, and the Dow Jones 30 US blue chips.

You cannot buy an index itself, because it is a calculation, not a share. Traders take a position on it rising or falling with a contract for difference (CFD), quoted in index points and settled in cash.

This guide covers what an index is, how it is calculated, the main indices traders follow, how an index CFD works with a worked profit and loss example, when each one trades, what it costs and how to place the trade in MetaTrader 5 (MT5). In maths, "indices" also means powers such as 2³; this page is about stock market indices.

What are indices?

An index (plural: indices or indexes) is a single number that measures the combined price performance of a chosen basket of shares. S&P Dow Jones Indices, which runs the S&P 500 and the Dow, describes an index as a group of securities that represents and measures the performance of a specific market, segment or theme.

When most of the shares in the basket rise, the index rises; when most fall, it falls. That is why news reports say "the market fell 1% today": they are quoting an index.

Indices exist for countries (the FTSE 100 for the UK), regions, sectors (technology in the Nasdaq-100) and even a single country's smaller listed companies. Traders mostly use the big, liquid ones, because their CFDs have tight spreads and trade for long hours.

How indices sit next to forex, gold, shares and crypto is covered in asset classes, and how CFDs work in general in what is a CFD.

How is a stock index calculated?

Most stock indices are calculated in one of two ways: market-cap weighted, where bigger companies count for more, or price-weighted, where higher-priced shares count for more. The weighting decides which company moves the index most; the table shows which indices use each method.

Method How it works Indices that use it
Market-cap weighted Each company counts in proportion to its market value (share price × shares available to trade) S&P 500, Nasdaq-100 (with caps on the largest names), FTSE 100, DAX
Price-weighted Share prices are added up and divided by a divisor, so a $500 share moves the index ten times more than a $50 share for the same % move Dow Jones (US30), Nikkei 225

In a market-cap weighted index, a 1% move in the largest company can move the index more than a 10% move in the smallest. The index provider changes the list on a schedule (the "rebalance"), adding and removing companies, so the index keeps tracking the market it was built for. How the Dow's divisor works, with numbers, is in the US30 guide.

Two panels. Price-weighted, as in US30 and JP225: a 500 dollar share and a 50 dollar share each rise 1%, adding 5 dollars and 50 cents, so the dearer share moves the index 10 times more. Market-cap weighted, as in US500, NAS100 and UK100: a 1% rise in a 3,000 billion dollar company adds 30 billion of value, more than a 10% rise in a 200 billion dollar company adds
In a price-weighted index the highest share price counts most; in a market-cap weighted index the largest company does.

What are the main stock indices traders follow?

The indices most traded as CFDs are the big US ones (US30, US500 and NAS100), Germany's GER40, the UK's UK100 and Japan's JP225. Symbols are broker names, not exchange tickers, so yours may read DJ30, SPX500, USTEC, DE40 or FTSE100 instead.

CFD symbol Index Market What it tracks Weighting Quoted in
US30 Dow Jones Industrial Average US 30 large US blue-chip companies Price US dollars
US500 S&P 500 US 500 leading US companies, about 80% of US market value Market cap US dollars
NAS100 Nasdaq-100 US 100 of the largest non-financial companies listed on Nasdaq, heavy in technology Modified market cap US dollars
GER40 DAX Germany The 40 largest German companies on the Frankfurt exchange Free-float market cap Euros
UK100 FTSE 100 UK The 100 largest companies on the London Stock Exchange Free-float market cap Pounds
JP225 Nikkei 225 Japan 225 large companies on the Tokyo Stock Exchange Prime market Price Japanese yen

The DAX tracked 30 companies until September 2021, which is why older material calls the CFD GER30.

Which index moves the most?

NAS100 usually moves the most in percentage terms, because it is concentrated in large technology companies, while US500 and UK100 tend to move less. Volatility changes from week to week, so check recent daily ranges on your own chart rather than relying on a fixed ranking. A bigger daily range means your stop has to sit further away, and your position size has to shrink to keep the same money at risk.

How does trading an index CFD work?

An index CFD is a contract with your broker that pays the difference between the index price when you open and when you close, multiplied by the value of one point. You can buy if you expect the index to rise or sell if you expect it to fall, as going long and short explains.

Profit or loss = points moved × value per point per lot × lots, for a buy. For a sell, the sign flips.

The value of a point per lot is set in the contract specification and differs between brokers and symbols: on one account, 1 lot of US500 is $1 per point, on another $10. The margin you put up is a share of the position value, set by your leverage. GER40 points are worth euros, UK100 points pounds and JP225 points yen, and MT5 converts the result into your account currency.

Worked example: one US500 trade, both directions

The example uses an example US500 price of 6,800, a contract where 1 lot is worth $1 per point, and margin of 5% of the position value (1:20 leverage).

You open 5 lots. The position value is 6,800 × $1 × 5 = $34,000, so the margin set aside is 5% of that, $1,700. Each point is worth $1 × 5 = $5.

US500 moves to Points moved Buy 5 lots Sell 5 lots
6,860 +60 +$300 −$300
6,740 −60 −$300 +$300
6,920 +120 +$600 −$600
6,680 −120 −$600 +$600

A 60-point move is under 1% of 6,800 (60 ÷ 6,800 ≈ 0.88%), yet on a $1,700 margin it is a $300 gain or loss, about 18% of the margin. That is leverage at work in both directions.

Costs come off every row. With a 0.5-point spread, opening 5 lots costs 0.5 × $5 = $2.50, so a buy closed at 6,860 nets $300 − $2.50 = $297.50, and one closed at 6,740 nets −$300 − $2.50 = −$302.50.

When can you trade indices?

Each index CFD is most active while its home stock exchange is open: Europe and the UK from 08:00 UTC, the US from 14:30 UTC in winter, and Japan from 00:00 UTC. Many brokers quote index CFDs for longer than the exchange session, with thinner trading and wider spreads outside it.

The offset columns stay fixed all year, but Europe, the UK and the US move their clocks, so the times shift by an hour twice a year. The table uses the winter times that apply from early November 2026 (Europe changed on 25 October, the US changes on 1 November) and gives the summer times in brackets.

Index CFD Exchange session (local) UTC UTC+1 (West and Central Africa) UTC+2 (Southern Africa) UTC+7 (mainland Southeast Asia) UTC+8 (maritime Southeast Asia and East Asia)
GER40 Xetra 09:00 to 17:30 Frankfurt 08:00 to 16:30 (summer 07:00 to 15:30) 09:00 to 17:30 (summer 08:00 to 16:30) 10:00 to 18:30 (summer 09:00 to 17:30) 15:00 to 23:30 (summer 14:00 to 22:30) 16:00 to 00:30 (summer 15:00 to 23:30)
UK100 08:00 to 16:30 London 08:00 to 16:30 (summer 07:00 to 15:30) 09:00 to 17:30 (summer 08:00 to 16:30) 10:00 to 18:30 (summer 09:00 to 17:30) 15:00 to 23:30 (summer 14:00 to 22:30) 16:00 to 00:30 (summer 15:00 to 23:30)
US30, US500, NAS100 09:30 to 16:00 New York 14:30 to 21:00 (summer 13:30 to 20:00) 15:30 to 22:00 (summer 14:30 to 21:00) 16:30 to 23:00 (summer 15:30 to 22:00) 21:30 to 04:00 (summer 20:30 to 03:00) 22:30 to 05:00 (summer 21:30 to 04:00)
JP225 09:00 to 15:30 Tokyo, lunch 11:30 to 12:30 00:00 to 06:30 01:00 to 07:30 02:00 to 08:30 07:00 to 13:30 08:00 to 14:30

The US session times are from the SEC's regular trading hours. Japan does not use daylight saving, so JP225 times stay the same all year. Your broker's server clock may differ from your local time: in MT5, right-click the symbol, choose Specification and read the sessions for each day. The wider trading day is mapped in forex trading sessions and the forex market hours tool.

The first minutes after each cash open are usually the most active, because overnight news and orders are priced in at once. The US open, 14:30 UTC in winter and 13:30 UTC in summer, is the busiest stretch of the index day.

What moves index prices?

Index prices move with the share prices inside them, so anything that changes what investors expect from those companies moves the index: earnings, central bank interest rate decisions, economic data and the general mood for risk. The table below lists each driver and where to learn more.

Driver Why it moves indices Learn more
Company earnings Results from the largest members move a market-cap index most; in the Nasdaq-100, a few technology giants carry a large weight Earnings and stock CFDs
Interest rates Higher rates make borrowing dearer and future profits worth less today, which tends to weigh on shares Monetary policy and currencies
Economic data Jobs, inflation and growth reports change expectations for profits and for rates Major economic releases
Risk mood In a sell-off, shares around the world often fall together; in calmer markets they often rise together Risk-on, risk-off
Currency moves A weaker euro or pound can lift exporters inside the DAX or FTSE 100, whose sales abroad are worth more at home What moves market prices

Prices react to the gap between what was expected and what came out. A strong earnings report that was already expected can still be followed by a fall.

What does it cost to trade indices?

Trading an index CFD costs the spread on every trade, a swap (overnight financing) for each night a position stays open, and a cash adjustment when companies in the index pay dividends. Some accounts also charge commission. The table works each cost out for 5 lots of US500 at $1 per point.

Cost How it works Example on 5 lots of US500 at $1 per point
Spread The gap between the buy and sell price, paid when you open 0.5 points × $5 = $2.50
Swap A daily charge or credit for holding overnight, set per lot for longs and shorts At −$0.80 per lot per night, 3 nights cost 3 × 5 × $0.80 = $12.00
Dividend adjustment When an index member goes ex-dividend, the index drops by about that amount; brokers usually credit longs and debit shorts Shown as a separate line in your account history
Commission Charged on some account types Shown in your account terms

The swap figure above is an example; the real rates are in each symbol's Specification window. How these costs are calculated in general is in spread, commission and swap, and the trading cost calculator adds them up for a planned trade.

How do you trade an index on MetaTrader 5?

To trade an index on MT5, add the symbol to Market Watch, check its Specification, press F9 for a new order, enter the volume, stop loss and take profit, then click Buy or Sell. The position then appears in the Trade tab of the Toolbox, with its running profit or loss in your account currency.

  1. Find the symbol. Right-click Market Watch, choose Symbols and search for the index (for example US500, NAS100 or GER40). Click Show.
  2. Read the specification. Right-click the symbol and choose Specification. The MT5 Market Watch help lists what it shows: contract size, tick size and tick value, swaps and trading sessions.
  3. Open the order window. Press F9 or right-click the symbol and choose New Order.
  4. Set size, stop and target. Enter the volume in lots, then the stop loss and take profit.
  5. Click Buy or Sell. Buy if you expect the index to rise, Sell if you expect it to fall.

The full walkthrough, including the mobile app, is in place your first trade on MT5.

How do you size an index trade?

Size an index trade from the money you choose to risk and the distance to your stop: lots = money at risk ÷ (stop distance in points × value per point per lot). Because an index can move hundreds of points a day, the stop distance, not the account size, decides how many lots you can hold.

Example: a $2,000 account, 1% risk per trade ($20) and a NAS100 stop 40 points from entry, on a contract worth $1 per point per lot. The size is $20 ÷ (40 × $1) = 0.5 lot.

On a $10-per-point contract, the same plan is $20 ÷ (40 × $10) = 0.05 lot, with the same −$20 and +$40 outcomes. The method is set out in position sizing, and the margin calculator shows the margin that size needs.

Try it on demo

On an MT5 demo account, open the Specification for US500, NAS100 and GER40 and write down each one's contract size, tick value and sessions. Then open the smallest position on one of them a few minutes before its cash open, with a stop loss and take profit, and watch how the spread and price behave as the session starts. Note the points moved and what that was worth for your size.

Frequently asked questions

What are the 5 major indices?

Traders usually mean the Dow Jones (US30), the S&P 500 (US500), the Nasdaq-100 (NAS100), Germany's DAX (GER40) and the UK's FTSE 100 (UK100). Japan's Nikkei 225 (JP225) is often added as a sixth. Each tracks a different basket of large companies.

Is trading indices better than forex?

Neither is better; they behave differently. An index tracks a basket of shares and is busiest during its exchange's hours, while a currency pair trades around the clock on weekdays. Many traders do both and size each from its own stop distance and point value.

Can you trade indices with a small account?

Yes. Index CFDs trade in lot fractions such as 0.01 or 0.1, so a small account can hold a small position. What matters is that the stop distance times the point value for your size stays within the amount you plan to risk on one trade.

Do index CFDs pay dividends?

You do not receive dividends as such, because you own no shares. When an index member goes ex-dividend, brokers usually make a cash adjustment, crediting long positions and debiting short ones, so the index's drop on that day does not distort your result.

What does US500 mean?

US500 is a broker symbol for a CFD on the S&P 500, the index of 500 leading US companies run by S&P Dow Jones Indices. Some platforms call it SPX500 or SP500. It is quoted in index points, and your broker sets what each point is worth per lot.

Sources

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