Trading the main US stock index with an FSCA-regulated broker
Choosing an S&P 500 trading platform is a decisive step for anyone wishing to trade the five hundred largest companies in the United States, across the entire world. This asset, often considered an indicator, represents an indicator of the global economy. Before trading, it is useful to understand how the major stock indices work and the specificities of the market. This comprehensive guide, written by our experts, details the steps to follow to speculate on this emblematic market. It offers you precise stock market analysis elements, delivers every essential piece of information and presents information on the risks linked to financial transactions.
Why invest in this benchmark stock index?
Originally created by the rating agency Standard and Poor, this weighted stock index (often searched for under the name 500 index) groups each American company among the most influential. Unlike the Dow Jones (DJ30), which includes only thirty historic companies, or the Nasdaq (NAS100), very concentrated on technology, the S'P 500 index offers an exhaustive picture of the American economy and of its growth.
A specialized committee is responsible for selecting the companies included in the index, according to defined criteria.
This basket of stocks provides exposure to different sectors of the American stock market:
- Exposure to several sectors: With a single transaction, you are exposed simultaneously to various sectors. Diversification does not eliminate risk and returns may vary.
- The dynamism of American stocks: American stocks are a component of this index. The total value and the capitalization of this index weigh several tens of thousands of dollars.
- A global indicator: It is followed on global markets. The main fund managers in the world use it as a basic reference point.
How CFDs on indices work
It is useful to understand how CFD trading (Contracts for Difference) operates before trading. How do CFDs work in practice?
The CFDs are derivative financial instruments. This means that you will not buy the underlying asset physically. Whether you trade CFDs on stocks, CFDs on currencies, CFDs on indices, CFDs on commodities or CFDs on forex, you speculate only on the difference in price (or quote) between the opening and the closing of your position.
CFDs make it possible to trade certain markets without holding the underlying asset. They also make it possible to sell short (take a position on the downside). CFDs may concern liquid markets.
Comparison: RaiseFX versus international brokers
CFDs make it possible to trade American assets by taking an upward or downward position. Their operation and costs may vary depending on the applicable conditions.
Traditional ETFs vs RaiseFX CFDs
An S'P 500 ETF can be traded through a bank. The funds concerned may charge annual management fees and the purchase is of units.
Our web and mobile platform lets you view the pricing conditions applicable to transactions. Costs may include a spread, notably on the EUR USD pair.
Infrastructure, liquidity and order execution
Our technology system relies on servers. Liquidity (the fluidity of trading) and latency can be measured.
The technical characteristics can be consulted in the information available on our services. Execution conditions and price slippage may vary, notably when the market absorbs large volumes of investment.
| Trading criterion | ETF purchase (Bank / Traditional broker) | CFD trading via RaiseFX |
|---|---|---|
| Direction of the investment | Buy only (gain if prices rise) | Speculation on rises and falls |
| Applicable fees | Management fees and brokerage fees depending on the institution | Costs may include a commission or a spread |
| Use of margin | Varies depending on the institution | Leverage available (amplifies gains and losses alike) |
| Required capitalization | Purchase of whole units (very expensive) | Deposit according to the applicable conditions |
Open a demo account and familiarize yourself with the platform using a virtual balance.
How do I open a position on this quote?
To trade the major American index, the process involves several steps. If you wish to join our platform, here are the steps that follow:
- Account creation: Go to our website. You will need to verify your identity in accordance with the applicable requirements.
- Funding: You can deposit funds according to the applicable terms (in EUR or an equivalent in USD min). You can also choose the currency of your account.
- Searching for the asset: On your trading platform, use the search bar to find the symbol of the index. You will be able to see and view the chart in real time.
- Setup: Define the size of your lot and the parameters of your order. Take into account the risks associated with your position.
- Risk management: Place a Stop Loss before confirming your purchase or your sale.
Technical and stock market analysis: understanding the movements
Market analysis can combine technical analysis and the study of fundamentals. The sentiment of the market constantly evolves.
Macroeconomic signals and factors
The volatility of the index is driven by the news. The macroeconomic announcements in the United States (such as the NFP employment figures, decisions on the interest rates of the Federal Reserve) generate strong signals every day. This index is traded actively during these periods.
The past performance is never a guarantee of future results. However, following a training academy enables you to interpret this data. The weight of technology is so great that the results of a single firm (depending on where its corporate headquarters are located) can influence the trend within a few hours, especially during announcements at the end of the year. The market is sometimes monitored in pre-market (the pre-opening session).
Regulation, financial security and risk management
Trading financial products involves risks. RaiseFX is regulated by the FSCA in South Africa (FSP 50506).
A strict legal framework
RaiseFX is regulated by the FSCA in South Africa (FSP 50506). The company is structured as a Limited (or Ltd) depending on its jurisdiction.
⚠️ Legal warnings on CFDs (Must be read)
Trading derivative products carries a high risk of financial loss.
The use of margin amplifies losses as well as gains. An adverse movement can result in a significant, or even total, loss of the capital committed. Do not commit money that you may need in the short term.
If you have any doubt, please consult a financial advisor to obtain personalized advice. Keep in mind that many beginner traders lose money, and you must be prepared for this possibility.
Need assistance? Contact our support center. Our customer service helps you get started with your tools, for example with our web platform.
Understanding the composition of the S&P 500
The S&P 500 groups together companies listed in the United States selected according to criteria defined by a committee, notably their size, their liquidity and their representativeness. It covers several sectors of the economy, but the companies that make it up do not all have the same weight in the calculation of the index. The weighting is based mainly on float-adjusted market capitalization, that is to say the value of the securities accessible to investors on the market.
The composition changes over time: a company may be added or removed following a periodic review or a significant change in its situation. Changes in the most heavily weighted companies can have more influence on the index than those of smaller companies. To interpret a quote on an S&P 500 trading platform, it is therefore useful to distinguish the general movement of the market from developments specific to a few large components.
The main order types to know
A market order requests execution at the best price available at the time it is transmitted. The price obtained may differ from the one displayed just before confirmation, notably when the market moves quickly or liquidity changes. A limit order sets a maximum price for a purchase or a minimum price for a sale, but its execution is not automatic if the market does not reach that level.
A stop order is triggered when the price crosses a defined threshold, and may then become a market order depending on the terms offered. It may therefore be executed at a price different from the threshold, in particular in the event of a price gap. The precise conditions, the validity period and the available options vary depending on the product and the interface: checking them before submitting an order helps to understand how it works.
Defining the size of a position and its limits
The size of a position determines the effect of a price change on the financial result. To estimate it, you must take into account the value per point or per unit indicated in the contract specifications, as well as the distance between the entry price and the envisaged exit level. The same movement of the index therefore does not have the same consequences for all position sizes.
A stop loss can be used to trigger a closing when the price reaches a chosen threshold, without guaranteeing the execution price in the event of high volatility or a price discontinuity. Leverage amplifies gains and losses compared with an unleveraged exposure, which makes position size and available margin important to monitor. The risk is not limited to an isolated transaction: several positions linked to the same sectors or market factors may move in the same direction.
Common mistakes when following the index
Focusing only on the last displayed price may lead to overlooking the gap between the bid and ask prices, the execution conditions or the costs associated with the position. It is also possible to confuse the level of the index with the price of the CFD, which depends on the characteristics of the contract and the applicable adjustments. Reading the product information helps to identify these differences before any transaction.
Another mistake is frequently modifying one's orders because of a momentary movement, without checking whether the initial parameters remain consistent with the accepted risk. Company announcements, economic data and periods of low liquidity can lead to sudden movements or price gaps. Methodical monitoring of positions, thresholds and scheduled events helps to better understand what affects the exposure, without eliminating the risk of loss.
Useful glossary for reading an S&P 500 quote
Volatility refers to the magnitude of price changes over a given period; on its own, it says nothing about their direction. Liquidity corresponds to the ease with which orders can be executed, while the spread is the gap between the bid price and the ask price. These notions help place a quote in its context, but do not make it possible to know the outcome of a transaction in advance.
Margin is the amount required to maintain a position according to the product's rules; it is not equivalent to the maximum possible loss. The float refers to the shares available for trading and is used in calculating the weighting of many components of the index. Finally, a price gap, sometimes called a gap, corresponds to a discontinuity between two successive price levels, a situation that can change the execution conditions of a stop order.
Frequently asked questions about trading the index
The Dow Jones Industrial Average (DJ30) groups only thirty large industrial companies and is weighted by the share price, regardless of the size of the company. The Standard & Poor's 500, with its five hundred companies, offers a much broader view of the American market (or market).
Yes. The trading account for CFDs (derivative contracts) offered by our platform makes it possible to trade the index almost continuously. However, the period from 15:30 to 22:00 (Paris time) corresponds to the physical stock market opening, when the trading volume may be higher.
Buying an ETF may involve management fees. CFDs make it possible to sell short (take a position on the downside) and trading them may involve a financial margin.
Margin makes it possible to open a position whose value may be greater than the funds tied up in your trading account. Gains as well as losses may be amplified in the event of market movement.
Although diversified, the index is today strongly influenced by the technology sector, followed by the healthcare sector, financial services and consumer discretionary. The last quarter of each year is often closely followed.
Lot size, Stop Loss orders and risk management are elements to take into account before a major macroeconomic announcement (such as the publication of key interest rates).