Most major economies have at least one financial index which groups together a series of assets. Major indices include:

• The SP 500 and Dow Jones indices based in New York
• The UK100 based in London
• The DAX30 based in Frankfurt
• The Hang Seng based in Hong Kong
• The Nikkei 225 based in Tokyo

When it comes to trading, indices work in a similar way to many other spread bet and CFD products. Like the individual stocks, which they are comprised of, traders can take positions dependent on whether they think that the value of the index will go up or down.

Again, as with individual stocks the aim is to either ‘sell’ at a higher price than one ‘bought’ at or alternatively to ‘buy back’ at a lower price if one originally ‘sold’.

All the stocks listed on the index will be included in the ongoing calculations to determine the current level of the index, with the index rising or falling in value depending on the current strength or weakness of its component stocks.

Because indices are made up of a number of different stocks, the volatility of an index can be quite high, due to constantly moving share prices.

However, for the same reason it is rare for indices to move by more than a couple of percentage points on a daily basis, since it’s unusual that all stocks on an index would experience sharp movements in the same direction at the same time.