In order to comprehend the various types of S&P Dow Jones indicies it’s a good idea to start with the basics of what an index actually is.
An index will follow a specific sector, market, asset-class, or concept, along with any combination of these to offer an exclusive, measurable number to the investors which makes it easier to trace and summarize the movement for the combination that was chosen.
An index enables tracking of the performance of selected concepts/categories and associated financial products and serves as a benchmark for comparative performance measures of various investments. Indeces can range from being very broad based to extremely specific.
Indices offered by S&P Dow Jones Indices (SPDJI)
S&P Dow Jones Indices, a joint venture of CME Group and McGraw-Hill Financial, provide over 830,000 Indices, with the S&P 500 being the most popular, followed by Dow Jones Industrial Average.
Most of the S&P Dow Jones indices are equity based and cover numerous asset classes that include currency, commodity, private equity, futures, fixed-income, options, and other alternative asset classes. The large volume of indices that are accessible offer solutions for a number of solutions to meet the needs of a broad based indexing right down to very specific indexing.
Standard indices available
The majority of S&P Dow Jones indices are based on common asset classes like real estate, fixed income, equity, commodity, and currency.
- Commodity indices track commodity futures market prices and associated economic indicators.
- Currency indices include the standard Forex rate Indices against the base currencies along with hedged Indices including those against base commodities such as gold hedged or oil hedged.
- Bond indices will track municipal bonds, money markets, leveraged loans, sovereign debt, corporate bonds, and CDS at regional, global, or a specific market level.
- Real estate indices will track the performance of companies that are operating in the real estate domain such as construction, building, and property development, and REITS. A variety that is called S&P/Case-
- Home pice indices track the US real estate residential property prices and are fairly popular measures of property prices across the USA.
The advantages of trading indices
Index trading provides an enormously high liquidity in Indices that are commonly traded along with diversification and stock-specific risk mitigation.
Investors get to choose what they want to trade, including leverage/margin with low margin requirements, and the small-sized “mini” contracts obtainable also with low capital requirements; and then there is short selling available on index-based products.
Finally, the brokerage costs on trading Index-based products such as ETFs and F&O are very low, and there could also be a lower tax rate.