The Stand and Poor 500 Index (S&P 500) is an index of the top 500 companies in the U.S. in terms of market size and liquidity. The index is a reflection of the risk and profit characteristics of the companies with the largest market capitalization.
S&P 500 Index Binary Options TradingAs a market weighted index, each stock is equal to its market value. The component companies on the S&P 500 are selected based on their level of trade volume and a market capitalization of more than $5 billion. For each of the companies, at least 50% of the stock must be publicly traded.
Why trade the S&P 500 Index
Compared to other U.S. indices such as the NASDAQ and Dow Jones, the S&P 500 is seen to be more reliable and a better reflection of U.S. stock market performance given that the index encompasses more companies.
• Lower volatility
More than $5 trillion is benchmarked to the S&P 500 index in different forms including derivatives, stocks and direct index assets. The companies that are benchmarked to the index are also some of the most liquid firms not just in the U.S. but also in the world. There is a significantly large amount of money tracking the index, an indication of the relative stability of the S&P 500 index fund. The S&P500 index fund comes with considerably low management fee, with the expense ratio being as low as just 0.09% while a mutual fund that is actively managed can cost as much as 1.5% of your investment annually.
• Better returns
The S&P 500 index fund offers far much better returns compared to buying individual stocks. The truth is, most investors do not make the most from the broad market. Hedge funds, which offer investment in a limited market, generate returns of about 30% while the S&P500 offers returns of up to 60%.
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Type of available binary options for S&P 500 Index
The common binary options contract types for S&P 500 are:
• Basic Call/Put options: You need to predict whether the price of S&P 500 will move up or down prior to the expiry time.
• Touch options: You are required to predict whether the price of S&P 500 will touch the given strike price prior to the expiry.
• In/Out: You need to predict if the price of S&P 500 will remain within a range of two strike prices.
Possible signals for S&P 500 Index
• Following a steady rise in the dollar, investors around the world abandoned risky assets such as commodities and equities to buy treasury bonds. This saw the S&P500 decline to its lowest in three weeks by 21.86P points with all 10 categories suffering a decline.
• Against a background of the Greek debt crisis, U.S. stocks have faced increased volatility, which has seen the S&P 500 fall below its 50-day moving average.
Factors Influencing Price of S&P 500 Index
Performance of the U.S. and global economy
How the U.S. economy and other major economies perform affects stock prices of the component companies on the index and thus affects the performance of the S&P 500 index.
Economic data such as interest rate.
Interest rates affect the cost of borrowing for companies and individuals, impact on inflation and consumer purchasing power.
Issues such as the Greek debt increase market volatility and could impact stock performance of composite companies on the index and therefore the performance of the index.