Market indices

Weighting is the whole design

A price-weighted index lets a high-priced share dominate even if the company is not the largest. A capitalisation-weighted index, which is the usual modern design, lets the biggest companies dominate. An equal-weight version of the “same” market will have different sector tilts, different turnover and a different long-run path. Quoting the level without naming the rulebook is incomplete.

What the familiar names actually cover

The S&P 500 is a committee-maintained large-cap US index, not the 500 biggest US companies by an automatic rule. The Nasdaq-100 is a subset of Nasdaq listings and is heavy in technology because of how those companies chose to list, not because it is a pure technology index. The FTSE 100 is the hundred largest companies on the London Stock Exchange that qualify, including firms that earn most of their money outside the UK. Local indexes such as the OMX Helsinki 25 or the S&P/ASX 200 tell you about a domestic large-cap basket, not about the world.

Ways people take a position

• An ETF or index fund that holds securities, or samples them, under a published method.
• A futures contract, which is leveraged and expires.
• An option on the index or on an ETF.
• A CFD at a broker, which is a private contract and not exchange open interest.

Hours, costs and risks

The cash index is calculated when its constituents trade, and some providers publish an overnight indicative value. Futures on major indexes trade for many more hours than the cash session. Those overnight moves are real trades in the future, not a print of the cash index. Costs include the fund’s ongoing charge, the future’s spread and roll, or the CFD’s financing. Tracking difference, securities lending inside a fund, and derivative counterparty risk are the quieter risks beside the obvious one: the basket can fall.