Introducing S&P 500
The S&P 500 is one of the most popular indexes in the stock exchange markets. It was founded in 1957 and stands for Standard and Poor’s 500. It is a stock market index that tracks the performance of 500 companies on the NYSE and NASDAQ which are among the largest in the United States. It is an important indicator of the level of strength in the US economy. It is also one of the most commonly followed indices. The S&P 500 is a free-floating entity whose market values are not fixed to another entity. An important fact about this index is that the companies in it get over 70% of their revenue from the United States. Let’s dive into why this is a great asset for trading and what factors impact its markets.
Why Trade The S&P 500
The S&P 500 index can become quite addicting once you’re used to it. Here are some reasons why we recommend trading with one of our favorite indexes. Warning, it’ll make you want to place positions asap!
Leverage
When compared to typical mutual funds and ETFs purchased without leverage through brokerages, trading CFDs with leverage and tight spreads can give a greater possibility for both earnings and losses. You must acquire S&P 500 holdings in mutual funds and ETFs at a 1:1 ratio, by putting aside the whole amount of the instrument. CFDs, on the other hand, just demand a tiny proportion of the index’s value to be put down. However, any profit or loss is the same as if you had set away the entire position’s worth. If the index is traded at a 1:5 leverage, you must put down 20% of the asset’s value, but with a 1:20 leverage, you just need to put down 5% of the instrument’s initial position value. When the trade is closed, your profit or loss is computed based on the total value of your position, not the amount set aside to begin the transaction. It is critical to understand that when you use leverage, both your prospects for profit and your potential losses are multiplied.
Executions
S&P 500 has the advantage of being able to be traded with fast executions. This is because it falls under the category of a CFD which can be opened within milliseconds on any platform. This makes the chances of a slippage from occurring pretty minimal. ETFs have an increased risk of facing a slippage because their execution time is much slower and prices can change between the time you click to execute an order and the time the order actually gets executed. These are all factors that you need to keep in mind when deciding which asset to trade and why the S&P 500 is among the top choices.
Volatility
S&P 500 is one of the most popular indexes in the world. As a result, it faces quite different market circumstances than the majority of the other indexes in this market. Most of the time, the S&P 500 trades in a highly volatile market. This is mostly due to the fact that there is always some important economic event taking place somewhere in the world. When a large event occurs, it does demonstrate great volatility on occasion. Worst of all, these periods of instability are highly unexpected. This suggests that analysts are already ahead of the dynamic duo, attempting to forecast when this crucial commodity would face volatile market conditions. As a result, S&P 500 is quite popular among scalpers, who use these times of volatility to make a quick profit.
S&P 500 Trading Tips
Whether you’re a novice or an experienced trader, you can never have too many suggestions to aid you on your way. At the end of the day, liability for any loss is returned to us, which means we must proceed with the utmost caution on our journey. Here are some of our favorite trading strategies for the S&P 500 index:
Trade Timings
The S&P 500 index is available to trade 24 hours a day, 5 days a week. It is important to note that this does not necessarily mean that it should be traded at any time within this period. Most experts in the S&P 500 trading prefer to trade this index only during main market hours. This is because the market is much more liquid during this time and they can get tighter spreads. The main market hours for the S&P 500 are between 9:30 am and 4 pm EST.
Stop Loss
Stop loss is an important tool to use when trading the S&P 500 index. It makes sure you don’t incur more losses than you can handle. You can set up any value of your choice for the stop loss. If the S&P index touches this value, the deal will close automatically in a loss. Oftentimes we are unable to keep a watch out on the market at all times. In order to prevent a margin call when we’re away, it is important to put a stop loss on all our trades, even the ones that are doing well. This way we are trading quite safely with no risk of incurring any major losses.
Day Trading
Day trading is a trading approach in which a trade is opened and closed on the same day. All transactions, whether successful or not, must be completed before the market closes. Scalping is a typical trading method for this trading style. Traders would open a BUY and SELL position at the same rate for the same currency pair. This enables them to benefit regardless of how the market evolves. When the market falls, they profit from their opposing position. This method is perfect for NatGas, which may be quite volatile at times. Day trading, particularly scalping, is a terrific strategy to profit from shifting market circumstances during times of volatility.
Factors Affecting The S&P 500
There are a couple of factors affecting the price of the S&P 500 index. Each of these that to be watched out for carefully. Here are some top factors to watch closely:
Information Technology Sector
About 19.9% of the companies in the S&P 500 index belong to the information technology sector. This is the biggest sector involved in this index. Therefore, it plays a huge role in determining the value of the S&P 500. If the IT sector faces a boom, the IT companies on this index will face a positive impact that will increase their market value. This will cause the S&P 500 to also face an increase in its market share. Similarly, if the IT sector faces a recession, the IT companies on the index will suffer a decrease in their market value. This will cause the S&P 500 to also face a decrease in its market value.
Healthcare Sector
About 15.8% of the companies in the S&P 500 index belong to the healthcare sector. This is the second biggest sector involved in this index. Therefore, it plays a huge role in determining the value of the S&P 500. If the healthcare sector faces a boom, the healthcare companies on this index will face a positive impact that will increase their market value. This will cause the S&P 500 to also face an increase in their market share. Similarly, if the healthcare sector faces a recession, the healthcare companies on the index will suffer a decrease in their market value. This will cause the S&P 500 to also face a decrease in their market value.
Telecommunications Sector
About 9.9% of the companies in the S&P 500 index belong to the telecommunications sector. This is among the biggest sectors involved in this index. Therefore, it plays a huge role in determining the value of the S&P 500. If the telecommunications sector faces a boom, the telecommunications companies on this index will face a positive impact that will increase their market value. This will cause the S&P 500 to also face an increase in their market share. Similarly, if the telecommunications sector faces a recession, the telecommunication companies on the index will suffer a decrease in their market value. This will cause the S&P 500 to also face a decrease in their market value.
Energy Sector
About 5.4% of the companies in the S&P 500 index belong to the energy sector. This is among the biggest sectors involved in this index. Therefore, it plays a huge role in determining the value of the S&P 500. If the energy sector faces a boom, the energy companies on this index will face a positive impact that will increase their market value.
This will cause the S&P 500 to also face an increase in their market share. Similarly, if the energy sector faces a recession, the energy companies on the index will suffer a decrease in their market value. This will cause the S&P 500 to also face a decrease in their market value.
Real Estate Sector
About 2.9% of the companies in the S&P 500 index belong to the real estate sector. This is among the biggest sectors involved in this index. Therefore, it plays a huge role in determining the value of the S&P 500. If the real estate sector faces a boom, the real estate companies on this index will face a positive impact that will increase their market value.
This will cause the S&P 500 to also face an increase in their market share. Similarly, if the real estate sector faces a recession, the real estate companies on the index will suffer a decrease in their market value. This will cause the S&P 500 to also face a decrease in their market value.
The United States
A good chunk of the companies on the S&P 500 are based in the United States. Therefore, this major country plays a huge in determining the value of the S&P 500. If the economic conditions in the United States are improving, the companies on the S&P 500 that are based in the US will also face a positive impact that will increase their market value. This will cause the S&P 500 to also face an increase in their market value. Similarly, if the economic conditions in the United States face a decline, the companies on the S&P 500 that are based in the US will also face a decrease in their market value. This will cause the S&P 500 to also face a decrease in their market value.
China
A good majority of the companies on the S&P 500 have correlations with China. Therefore, this major country plays a huge in determining the value of the S&P 500. If the economic conditions in China are improving, the companies on the S&P 500 that are based in China will also face a positive impact that will increase their market value. This will cause the S&P 500 to also face an increase in their market value. Similarly, if the economic conditions in China face a decline, the companies on the S&P 500 that are based in China will also face a decrease in their market value. This will cause the S&P 500 to also face a decrease in their market value.
The United Kingdom
A good chunk of the companies on the S&P 500 have correlations with the United Kingdom. Therefore, this major country plays a huge in determining the value of the S&P 500. If the economic conditions in the United Kingdom are improving, the companies on the S&P 500 that are based in the UK will also face a positive impact that will increase their market value. This will cause the S&P 500 to also face an increase in their market value. Similarly, if the economic conditions in the United Kingdom face a decline, the companies on the S&P 500 that are based in the UK will also face a decrease in their market value. This will cause the S&P 500 to also face a decrease in their market value.