Trading S&P 500

Written by Miro Nikolov

Miro Nikolov

Miro Nikolov is the co-founder of TradingPedia.com and BestBrokers.com. His mission is to help people make profitable investments by giving them access to educational resources and analytics tools.

, | Updated: October 30, 2024

S&P 500 stands for Standard & Poor’s 500 Index. Basically, this index represents the value of 500 stocks which have been chosen based on their market value, liquidity, sector classification, public float, financial stability, domicile, period being publicly listed and listing exchange.

In short, the S&P 500 index is one of the leading representations for the condition of the US stock market and an indicator to the US economys health, as it captures approximately 80% coverage of available market capitalization.

The companies included in this index are chosen by the S&P Index Committee which consists of a team of expert economists and analysts who constantly keep track of the leading companies in the U.S.

Below you can see a list of the sectors, in which the 500 companies operate, as well as their share in the index as of December 31st, 2012:

• Energy – 10.99%
• Materials – 3.62%
• Industrials – 10.12%
• Consumer Discretionary – 11.50%
• Consumer Staples – 10.61%
• Health Care – 12.01%
• Financials – 15.61%
• Information Technology – 19.04%
• Telecommunication Services – 3.06%
• Utilities – 3.43%

Companies must meet certain requirements in order to be included in the S&P 500 Index.

• Minimum market capitalization of $5.3 billion
• Adequate liquidity and reasonable price – the ratio of annual dollar value traded to float adjusted market capitalization should be 1.00 or greater (thus $1), and the company should trade a minimum of 250 000 shares in each of the six months leading up to the evaluation date.
• A minimum of 50% of its stocks must be in possession of the public (50% public float)
• Financial stability – the sum of the most recent four consecutive quarters’ as-reported earnings should be positive as should the most recent quarter. As-reported earnings are Generally Accepted Accounting Principles (GAAP) net income excluding discontinued operations and extraordinary items.
• Domicile – only US companies.
• Listing exchange – the companies should be listed either on the NYSE, or the NASDAQ
• Initial Public Offerings – IPOs should be seasoned for 6 to 12 months before being considered for addition to an index.
• Sector classification – contribution to sector balance maintenance, as measured by a comparison of each GICS (Global Industry Classification Standard) sector’s weight in an index with its weight in the market, in the relevant market capitalization range.
• Eligible securities – eligible securities include all US common equities listed on the NYSE (including NYSE Arca and NYSE MKT), the NASDAQ Global Select Market,
  the NASDAQ Select Market, and the NASDAQ Capital Market.

Why the S&P 500?

This is one of the most widely traded indexes, both on the traditional market and in binary options. The reason why it is favored by so many traders is that it is generally considered as a gauge of the US economys strength. Thus, traders involved in everyday monitoring of US economic data, as well as corporate news from the top 500 US companies often find the S&P 500 index a suitable instrument to invest in.