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What Is a National Index?

Adam Lienhard
What Is a National Index?

An investment technique that’s gaining popularity among investors is index trading. This strategy involves purchasing and selling securities that follow the performance of a specific stock market index. Typically, stock market indices are used as benchmarks to evaluate the performance of an investment portfolio or the overall stock market.

Definition and examples

One way to measure a country’s stock market performance is through national indices. These are computed using the prices of a specific set of stocks listed on the exchange of that country. 

National indices are commonly used to check the general state of a country’s economy and to gain insights into market trends and investor attitudes.

The list of the most popular national indexes includes:

  • Dow Jones Industrial Average (DJIA): The index comprises thirty top-performing stocks listed on the New York Stock Exchange (NYSE) and is commonly utilized as an indicator of the U.S. stock market’s performance.
  • S&P 500 Index: This measure monitors the progress of 500 major American stocks and is viewed as a more comprehensive gauge of the U.S. stock market compared to the DJIA.
  • FTSE 100 Index: The index monitors the progress of the top 100 companies listed on the London Stock Exchange and is frequently utilized as an indicator of the U.K. stock market’s status.
  • Nikkei 225 Index: The Tokyo Stock Exchange’s index that monitors the progress of 225 Japanese stocks is highly observed in Asia.
  • DAX Index: This index monitors the progress of the 30 biggest and most highly traded firms that are registered on the Frankfurt Stock Exchange in Germany.

Why trade indexes?

Index trading offers numerous advantages that make it an attractive investment strategy. Firstly, it provides diversification across multiple stocks, which can help reduce risk. 

Secondly, investors can invest in the overall performance of the stock market without the need to pick individual stocks. 

Finally, index trading can be a low-cost investment strategy, as ETFs and index futures often have lower fees and expenses than actively managed mutual funds. ETFs are investment funds that trade on a stock exchange like a stock, and they are designed to track the performance of a particular index. Index futures contracts, on the other hand, are agreements to sell or purchase the underlying index at a specific price and date in the future. 

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