Brokers for Trading the S&P 500

The S&P 500 is a stock market index that is viewed as a measure of how well the stock market is performing overall. It includes around 500 of the largest U.S. companies. Since so many companies are included in the S&P 500 index, many consider it a great way to diversify an investment portfolio. If you are looking to trade or invest in the S&P 500 online, you will need a trading account with an S&P 500 broker. There are some important things to consider before you choose a broker including account types, trading fees, execution policy, tools, education, funding and support.

What is the S&P 500?

Formally known as the Standard & Poor’s 500, it is a stock market index tracked by the financial services company Standard & Poor’s. The S&P 500 tracks the performance of about 500 high-value companies in the United States and therefore aims to represent the performance of the US stock market and overall U.S. economy. The inclusion criteria for Standard and Poor’s 500 are strictly defined and exclude the presence of subjectivity in the selection process.

In order to be included in the S&P 500 Index, a company must be publicly traded and based in the United States. It also needs to meet certain requirements for liquidity and market capitalization, have a public float of at least 10% of its shares, and have positive earnings over the trailing four quarters. Although this stock index covers US companies only there are no country restrictions neither on the brokerage companies nor on traders.

Dow Jones Industrial Average (DJI) or Dow 30, S&P 500, and Nasdaq 100 are the three large-cap indices of the US stock market. Some of the world’s top companies are a part of one or all the three indices with retail, institutions, and hedge funds holding a big stake in the companies listed on them.

Each year, about 20 to 25 stocks leave the S&P 500 and are replaced with other stocks that meet the guidelines for index membership. These changes usually are announced five trading days before the index change.

The SP 500 index value constantly goes up and down throughout the day, according to the weighted performance market data of the underlying companies. Day traders can speculate on these fluctuating prices by trading with a S&P 500 broker.

How can you trade the S&P 500?

If you want to trade the S&P 500 then you will need to choose a suitable broker and open a trading account. They will then provide you with a trading platform and your account details. You can then analyse and trade the S&P 500 whenever and wherever you like.

The S&P 500 (USA 500) index can be traded indirectly by using mutual funds or ETFs made up of stocks or futures, or it can be traded via Contracts for Difference (CFDs). Traders could choose to mimic S&P 500 trading by purchasing stocks or futures from each of the 500 companies.

CFD trading allows you to speculate on rising or falling market prices. Another feature of CFD trading is leverage. This basically means that you can take a position larger than the amount you have deposited. Some brokers use high leverage to try and attract clients but leveraged trading can be very risky especially if you don’t know what you are doing.

For instance, if you had an account balance of $1,000 and 1:100 leverage, you could in theory take a position size of $100,000 ($1,000 x 100 – $100,000). Whilst this gives a greater profit potential for any successful trade, it also means that a loss would be significantly larger if price was to go against the position.

S&P 500 vs Dow Jones

The S&P 500 includes 500 large, U.S.-based publicly traded companies, including all those listed in the Dow Jones Industrial Average, regardless of the stock exchange that is home to their trading activity. The Dow Jones tracks the stock prices of 30 of the biggest American companies.

S&P 500 vs Nasdaq 100

The S&P 500 tells a more complete story of what the market is doing than the Dow or Nasdaq 100. It is considered a better reflection of the market’s performance across all sectors compared to the Nasdaq Composite and the Dow. The downside to having more sectors included in the index is that the S&P 500 tends to be more volatile than the Dow.

Who are the best brokers for trading the S&P 500?

You don’t necessarily need a trading broker if you want to invest in the S&P 500, as you could always use a personal investment account. However, you can trade and can invest in the S&P 500 in a matter of minutes through an online investment platform.

S&P 500 brokers are brokerages who help clients trade in either the whole S&P 500 index or the individual companies within the S&P 500. Here is a selection of our best S&P brokers if you are looking for some inspiration.

Broker
Rating
Regulated
Min. Deposit
Founded
Max. Leverage
1.
AvaTrade Review

ADGM FRSA, ASIC, BVIFSC, CBI, FFAJ, FSCA, IIROC, JFSA

$100

2006

1:400

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
2.
IG Review

ASIC, BaFin, CFTC, DFSA, FCA, FINMA, FMA, FSA, FSCA, JFSA, MAFF, MAS, METI, NFA

$250

1974

1:200

76% of retail investor accounts lose money when trading spread bets and CFDs with this provider.
3.
Pepperstone Review

ASIC, BaFin, CMA, CySEC, DFSA, FCA, SCB

$200

2010

1:400

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
4.
IC Markets Review

ASIC, CySEC, FSA, SCB

$200

2007

1:500

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
5.
XM Group Review

ASIC, CySEC, DFSA, IFSC

$5

2009

1:888

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
6.
City Index Review

ASIC, FCA, MAS

$100

1983

1:200

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
7.
Forex.com Review

ASIC, CIMA, CFTC, FCA, FSA, IIROC, JFSA, NFA, SFC

$100

2001

1:50

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
8.
Markets.com Review

ASIC, BVIFSC, CySEC, FCA, FSCA

$/£/€100

2008

1:300

79.90% of retail investor accounts lose money when trading CFDs with this provider.
9.
BlackBull Markets Review

FMA, FSPR

$200

2014

1:500

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.
10.
FP Markets Review

ASIC, CySEC, FSCA, SVGFSA

$100

2005

1:500

Between 74-89% of retail investor accounts lose money when trading CFDs with this provider.

Trading the S&P 500 pros & cons

Pros

  • Track the overall market sentiment
  • Historical data and performance to analyse
  • Can save money on fees compared to individual stocks
  • S&P 500 trading available via many online brokers

Cons

  • Individual stocks can have a big impact on price
  • Very tough to track all of the companies at once
  • No exposure to small-cap companies

Conclusion: do I need an S&P 500 broker?

The S&P 500 can be a good way to diversify a portfolio across different company stocks and requires less time spent analysing each and every company, unless of course you want to. Some may argue that investing only in the S&P 500 does not provide the broad diversification that minimizes risk. If there are significant economic downturns and bear markets, they can still deliver large losses.

That being said, if you are planning to trade or invest in mutual funds or ETFs, you might want to take some time to choose a trusted S&P 500 brokerage firm that will meet your requirements including deposit size and trading style. You should read up as much as possible about the S&P 500 and can even practice your trading skills on a demo account before making any commitment.


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