Many traders start with indices because they are easier to follow and more straightforward than individual stocks. Instead of focusing on the performance of a single company, indices zoom out to analyse the wider market and combine multiple companies into one key asset.
Trading with indices still offers traders flexibility such as a focus on a specific sector or global region but also offers strong insights into broader economic trends and movements instead of intel focused on just one specific company.
Indices are especially ideal for beginner traders as they tend to have clearer trend patterns for a more predictable way of trading. This also supports technical analysis and ongoing trading education, helping traders to develop their knowledge and skills.
There are a number of indices to choose from and each index will behave differently defending on the market conditions, time zones, and volatility. This article will outline the key differences between three of the most globally traded indices – S&P 500 (USA), FTSE 100 (UK) and DAX 40 (Germany).
We will explore the key factors that trigger price movements in each index, as well as core features including index composition, trading hours and sector exposure.
By weighing up indices against one another, e.g. FTSE 100 vs S&P 500, traders can gain key information to help them choose the most appropriate index to align with their trading style and goals.
FTSE 100 vs S&P 500 vs DAX 40: Key Differences for Traders
Indices vary dramatically in factors such as company size and composition, sector exposure and global vs. domestic focus which means that analysing S&P 500 vs FTSE 100 vs DAX 40 is essential.
Choosing the right index will consider key factors such as trading style (e.g. day trader or long-term holds), risk appetite and trading preferences such as a specific sector or global region.
FTSE 100
Market-capitalisation weighted, the FTSE 100 focuses entirely on large-cap blue chip companies and the 100 largest companies listed on the London Stock Exchange.
It is reviewed on a quarterly basis and while it includes the UK’s largest companies, many of these are multinational organisations with global revenue streams meaning that it reflects both UK domestic and global economic conditions. It offers access to a diverse range of sectors with a strong focus on the finance and commodities sectors.
DAX 40
The DAX 40 tracks the 40 largest publicly traded German stocks listed on the Prime Standard segment of the Frankfurt Stock Exchange. Widely considered as the defining index of the German equity market, it has a capping factor of 10% for individual shares ensuring that no single component can dominate the overall index.
It also gives insights into European market sentiment thanks to a large proportion of industrial and manufacturing companies (global exporters) in the index. Based on free float market capitalisation, it is reviewed quarterly. As a performance index, DAX is also one of the few major country indices that takes dividend yields into account when calculating total returns.
S&P 500
Representing the 500 largest publicly traded companies in the United States, the S&P 500 is an extremely well-respected and utilised index. It offers great diversification across a wide range of sectors with an increasing dominance of tech companies. It also offers both domestic and international exposure – while it is entirely comprised of US businesses, many of these are global corporations and revenue generators. This means the S&P 500 offers a broad view of both the US stock market and strong, balanced insights into worldwide economic performance.
How FTSE 100, DAX 40 and US 500 Behave in Different Market Conditions
Depending on their composition, some indices may react more strongly to global news, while others are more influenced by regional factors. The DAX 40 is an index predominantly comprised of industrial components and global exporters. This makes it more sensitive to changes in global economic conditions and market movements.
The FTSE 100 is also more heavily influenced by global activity such as commodity prices, currency movements and worldwide macroeconomic trends. This is due to its large number of multinational components for whom overseas revenue is a major factor.
The S&P 500 is most impacted by US domestic activity, specifically factors such as economic data and policy decisions. While many of its components are also global giants, these are most heavily influenced by the US economy such as interest rate changes.
Trading Hours and Volatility: S&P 500 vs FTSE 100 vs DAX 40
Trading with indices means understanding that market hours operate on a rolling basis with four major and four minor sessions derived from geographical time zones. When it comes to indices, the trading hours of each one aligns with their respective country as follows:
- The S&P 500 follows the (major) New York session which runs from 1PM-10PM GMT.
- The FTSE 100 follows the (major) London session which runs from 8AM-5PM GMT.
- The DAX 40 follows the (minor) Frankfurt session that runs from 7AM-4PM GMT.
Trading hours for the FTSE 100 and DAX 40 run simultaneously for the majority of their day, which means traders typically experience a high rate of activity and volatility in European indices during these hours.
In a broader sense, markets are typically most active when trading sessions overlap as this creates high rates of liquidity.
The overlap between the London and New York sessions in particular is a vital time for traders as trades typically spike when New York opens to create higher volatility, sudden price changes and an increase in trading opportunities.
Activity during these highly volatile time periods illustrates why timing is so essential to trading strategy, especially for those trading intraday who need to capitalise on quick price movements. The markets also tend to offer lower liquidity and much slower price action outside peak hours.
Choosing Between FTSE 100, S&P 500 and DAX 40 Based on Your Trading Style
For those seeking indices with more steady movement, more predictable pricing and lower volatility, the FTSE 100 may be ideal.
For those seeking higher volatility, the DAX 40 is a good choice as its heavily industrial-themed composition means it typically experiences sharper price spikes throughout the trading day as it responds quickly to market news. These fast-paced movements can fit well with day traders and those with short-term goals.
The S&P 500 offers a good level of stability along with a healthy level of volatility to create strong trading opportunities and a good balance for those with a medium risk tolerance.
FTSE 100 vs S&P 500 vs DAX 40 FAQs for Traders
S&P 500 vs FTSE 100: Which Index is Best for Beginners?
While the S&P 500 has generated higher returns in recent years and may feel more accessible due to its broad diversification, the FTSE 100 can also be suitable for traders with little experience due to its typically steadier movements and more predictable pricing.
How do Price to Earnings Ratios Differ Regarding FTSE vs S&P?
The FTSE 100 typically has a much lower average P/E ratio (around 10), while the S&P 500 tends to trade at higher multiples (around 20).
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.