Trade S&P500 Shares

A few years ago it might not have occurred to traders in the UK to take much interest in trading the American markets. It was simply too difficult to arrange. Today, it's easy to trade both the US indices and individual equities of the major US companies, and to do so with leverage of your money using spread betting or contracts for difference.

One of the major US indices is the S&P 500, short for the Standard and Poors 500. Standard & Poor's is an information provider on the financial markets, and is well-known for its credit ratings. The S&P 500 index was invented in 1957, about 60 years after the Dow first came about. Despite the concentration on the Dow Jones Industrial Average when talking about the American economy, the S&P 500 is more representative as a whole. It actually captures about 70% to 75% of the American equity market by capitalization.


The companies included in the S&P 500 are large publicly held corporations which trade on either the New York Stock Exchange (NYSE) or the NASDAQ. Small companies are featured on other indices, such as the Russell 1000. Unlike the Russell, the companies included on the S&P are decided by committee, and not by rule. One of the conditions for inclusion is that there is sufficient liquidity, which kept Berkshire Hathaway, Warren Buffetts landmark investment company, off the list for many years, despite the fact that its capitalization is more than most of the 500 corporations combined.

There are two types of shares in the S&P 500, both growth stocks and less volatile value stocks, though the difference between these is sometimes not clear. The index is largely US based companies, and only US companies will be added in future, but there are a small number of international companies included at the moment. Sectors that are performing particularly well include energy, materials, and technology.

The financial sector has come back recently, despite the subprime crisis which caused extreme difficulty for a period. The reason for this is that the government bailed out the major companies with the intention that they would start lending again and stimulate the economy. Instead, the finance houses took the money offered at a very low interest rate and invested it elsewhere to earn a higher return than could be charged for a bank loan. Legislation is in process to try to correct this, and the outcome and consequently effect on share prices is not known yet.

Because the index is mainly composed of large caps, the companies on it are fairly stable and provide regular low risk trading opportunities for the spread better.

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