Market indices are measures of performance of certain aspects or sectors of a stock market. The most important of these indices are the Dow Jones Industrial Average (DJIA), the Standard & Poor`s 500 (S&P 500) and the NASDAQ Composite Index. They are generally based on the performance of selected U.S. stocks within their exchanges. The purpose of these indices is to assess the performance of certain sectors of the U.S. stock market or the economy as a whole.

The Dow Jones Industrial Average (DJIA)
Is the oldest U.S. market index. It covers all major areas of the US stock market, such as Industrial, retail, technology, healthcare and others. It is composed of 30 blue chip stocks that are among the largest in the U.S. economy.

The S&P 500 Is a well-known provider of indices for the U.S. stock market. It comprises the largest 500 companies and is used by investors as benchmark for this market

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It covers about 70% of the value of the U.S. stock market and comprises 380 industrial, 37utility, 73 financial, and 10 transportation stocks. Although less popular than the DJIA, it is often used as a more accurate measure of performance of the U.S. economy.
The NASDAQ Composite Index (The National Association of Securities Dealers Automated Quotation) includes a wide range of companies and is arguably the most followed index in the world. The recent surge in popularity for technological stocks has launched the NASDAQ into the spotlight.


The Nasdaq-100 Index includes 100 of the largest non-financial domestic and international companies listed on the Nasdaq National Market tier of the Nasdaq Stock Market Inc. The Nasdaq-100 index includes major players in high technology, airlines, department stores, and internet related companies.

Trading Stock indices

Buying to profit from an expected rise in the index (Going Long)

Someone expecting the level of a particular index to rise over a given period of time can seek to profit by buying indices contracts. If correct in forecasting the direction and timing of the change in level, the futures contract can later be sold at the higher level, thereby yielding a profit. If the index level declines rather than rises, the trade will result in a loss. Because of leverage, the gain or loss may be greater than the initial margin deposit.
For example, assume it is now January, the March Mini NASDAQ 100 futures contract is presently quoted at 1480, and over the coming months you expect the index to rise. You decide to buy a contract by putting a margin (deposit) of US$2000.Further assume that by February

the March NASDAQ Futures Index has risen to 1550 and you decide to take your profit by selling. Since each contract is US$20 times NASDAQ Index , the 70 index points profit would be $20 x 70 i.e. US$1400 . Suppose however, that rather than rising to 1550, the March NASDAQ had declined to 1390 and that, in order to avoid the possibility of further loss, you elect to sell the contract at that price. On $20 x NASDAQ index, the 90 points loss would thus come to US$1800.

Selling to profit from an expected decline in the index (Going Short)
Going short is, instead of buying a futures contract, you first sell a futures contract at a certain level in the hope that you will buy another contract at a later stage at a lower level thus realizing profit (or loss in case prices move in the other direction).
For example, assume that in January you have indications that the Mini Dow Jones 30 Futures Index will fall over the next several months. In the hope of profiting you sell one contract of March Mini Dow Jones at a level of , say 10500. If by March , the level has declined to 10100, an offsetting futures contract can be

purchased at this level, realizing a gain of 400 index points making a total profit of $2000 ( 400 index points x $5).A loss would be realized if the level has moved in the opposite direction.