The S&P 500 is the most popular stock index in the United States, followed closely by the Nasdaq. This guide includes a comprehensive breakdown of the criteria required for US stocks to be listed in the S&P 500, as well as an analysis of the top performing companies in the index. In addition, we explain how to get started trading the S&P 500 and list the best brokers, platforms and investing apps in 2022.
What Is The S&P 500?
The Standard and Poor’s 500, commonly known as the “S&P 500”, is the most traded stock market index in the United States. The S&P 500 tracks the performance of the 500 largest US companies which meet the S&P criteria for selection.
Because the S&P 500 represents most of the largest businesses in the US, many traders use the index to speculate on the health of the US economy in general. The index is even seen as a definition of the overall global economy.
It was founded by Henry Poor and the Standard Statistics Company in 1941. Since its development, US companies included on the S&P stock list have changed dramatically as firms have risen and fallen.
When trading the S&P 500, positions are share prices are typically denominated in USD.
S&P 500 Criteria Explained
The list of companies included in the S&P 500 is measured by the weightings of market cap and free float. For companies to be eligible for inclusion in the index, they must meet the following criteria:
- Trading on the NYSE for longer than one year
- Market cap of at least $14.6 billion (as of 2022)
- Majority of company shares are available in the public domain
- A minimum of 250,000 company shares have been traded in the last six months
- Have positive earnings reports for the most recent trading year, including the publication of any S&P 500 eligible fourth quarter performance
Note that not every large company in the US is necessarily included in the S&P as they may not satisfy the inclusion criteria above, including Berkshire Hathaway, Uber and Dell.
Five Biggest Stocks On The S&P 500
Over the last ten years, the companies trading at the top of the S&P 500 have changed significantly as technological advances, governmental support and other factors have influenced business growth. On average, the 5 largest trading companies in the S&P 500 account for 20% of the entire index, with the top 10 representing almost a third of the market.
Given that the index accounts for circa 80% of the market value of the US stock market, trading these big 5 stocks can have a significant influence on the S&P 500, sector and market performance.
As of mid-2022, the biggest players include:
- Apple Inc (AAPL) – Index Weighting: 7.1%, Market Cap: $2,707 B
- Microsoft Corp (MSFT) – Index Weighting: 6.0%, Market Cap: $2,311.4 B
- Amazon.com Inc (AMZN) – Index Weighting: 3.7%, Market Cap: $1,426.6 B
- Tesla, Inc (TSLA) – Index Weighting: 2.4%, Market Cap: $902.1 B
- Alphabet Inc. Class A (GOOGL) – Index Weighting: 2.2%, Market Cap: $836.5 B
Head to the official index for the top 10 stocks by market cap, along with any new additions.
The S&P 500 index opening hours are aligned to the trading hours of the New York Stock Exchange and the Nasdaq stock market. The opening hours are typically 9:30 AM to 4:00 PM EST (1:30 PM to 8:00 PM GMT), excluding market holidays.
Additionally, it is possible to engage in premarket trading and after-hours trading on the S&P 500, depending on whether your chosen broker offers it. There is no overnight trading or weekend trading on the S&P 500.
E-Mini S&P 500
To increase trading accessibility across the S&P 500, in 1997 the Chicago Mercantile Exchange (CME) began offering the E-mini S&P 500. This index offers futures and options trading contracts on the S&P 500 index.
An E-mini S&P 500 futures contract essentially states that if a trader buys a contract today, they are obligated to either buy or sell the asset at a pre-agreed share price on a set date in the future.
Day trading E-mini S&P 500 futures is less popular because E-mini futures are more stable and less volatile. For traders investing on a longer timeframe, price stability might attract them to the E-mini.
Traders of the S&P index may also deploy a hedging strategy with the E-mini S&P 500 to hedge against any unexpected price predictions that might impact their current trades. Investors can also set trading signals for any key stock price movements to alert themselves to swings that may compromise their positions.
Note, that both the emini futures index and the traditional index trading hours are in line with the CME and the NYSE.
How To Start Trading The S&P 500
Regardless of whether you’re targeting annual, quarterly, monthly, weekly or daily total returns, following a step-by-step approach will give you a good fundamental basis to start trading the S&P 500.
1. Select A Broker
An online broker is an investor’s gateway to the market. Therefore, it is important that you choose the broker that suits your financial goals, risk appetite and investment style. The key factors to consider when selecting a broker include:
The best trading platform for the S&P is a matter of personal preference. Key elements to look for when investing in the S&P 500 are a straightforward volume chart, market indicators (such as 50, 60 or 90-day moving average tickers), other technical analysis tools, strong trend tracking and comprehensive price history, plus information on company economics.
Some brokers will facilitate trading on top platforms such as MetaTrader 4 (MT4) or MetaTrader 5 (MT5). Alternatively, investors may wish to use a trading platform that is independent of their broker when speculating on the S&P 500. Traders may prefer to use an indices, futures and options chart that they are already familiar with from TradingView.
Retail trading can incur high fees, including commissions, deposit and withdrawal charges, plus transaction costs. If you’re trading in high volumes, these fees can reduce your trading yield, erode profits and impact your S&P trading margin.
Some brokers will advertise a $0 fee package when trading the S&P 500, but bear in mind that there may be hidden charges that are applied later.
The best S&P 500 brokers are transparent with their fee structure and publish a pricing schedule on their website. Prospective investors should be able to research how much it will cost to trade the S&P 500 without needing to create an account with a given provider.
Trading any asset class (including the S&P) can be confusing, so having a broker with reliable customer service is important. During trading hours, most brokers will offer comprehensive trading support, with the best brokerages offering 24/7 customer service via live chat, telephone, email and social media.
Leading brokers will offer additional features to enhance the user’s trading experience. When trading the S&P 500, using a historical data sheet can provide insight into past trends, prices, p/e ratio and dividend history. This data can typically be split out by year or by sector if traders want to research specific stocks rather than the entire S&P 500 index.
Some brokers may also offer trading calculators that can be used before entering a position, or when devising a new investing strategy. These include return or compound interest calculators which allow you to adjust variables, for example, based on whether you’re trading from the UK or not.
Other useful additional features include a trading calendar to keep track of important dates and news, historical and live price charts, an S&P trading bot to automate positions, or educational videos which investors can watch on the broker’s website.
When you’re risking your own capital, your funds must be secure. Most reputable brokerages will be regulated by a leading financial body such as the Securities & Exchange Commission (SEC) in the US or the Financial Conduct Authority (FCA) in the UK. You should always research whether your chosen broker is licensed to operate in your jurisdiction, and you can verify this by visiting the website of the independent watchdog.
The level of security offered by the broker is also important. Standard security procedures include a safe key code, encrypted data processing and multiple authentication factors.
2. Fund Your Account
Once you have selected your broker, you need to deposit funds into your account before you can begin to trade the S&P 500.
Each broker will offer different payment options. These can include most debit/credit cards, PayPal, and Skrill, though even cryptocurrency is being accepted as tender.
3. Do Your Research
Before you enter the market, it’s good practice to carry out in-depth analysis and market research on the S&P 500 and the stocks in question. Because it’s the most widely traded index in the US market, there is a significant amount of information available online. Some brokers will provide useful articles about the S&P on their websites, however third-party platforms can often provide better independent insights.
This is particularly true with the S&P 500 Futures Live Trading Group. This is a community of traders who train other investors and review S&P 500 ideas and strategies that have been shared by other members. Although new traders can join for free initially, it does cost to join and some of the reviews are mixed.
Investors looking for S&P 500 trading tips that are free of charge can use discussion forums such as Reddit or consult online articles and videos. Other popular sources include Bloomberg and Morningstar.
4. Choose Your Asset
Many traders may intend to trade the S&P 500 index or the E-mini S&P 500, however there is also the option to trade some of the individual stocks included in the 500-strong list. It’s difficult to have a good understanding of all 500 stocks, as each will have its own market price driven by unique factors and fundamentals.
Despite this, all S&P stocks on the index share two common qualities: volume and volatility:
The meaning of volume is the number of shares being traded at a specific time. The S&P 500 trading volume is based on all of the shares of the stocks listed under the index. If the chart history of the S&P showed that the index had increased by a daily trading volume of 1,000 transactions since yesterday and decreased by 500 today, then the total volume over the two days would be 500. In this example, the average daily trading volume of the S&P 500 would be 250 (500/2 days).
Investors can use trading volumes to gauge whether other market participants’ interest is increasing or decreasing in the index, which could prompt a move from the trader. This volume trading logic applies to both the entire S&P index as well as individual stocks within the S&P.
Volatility is the risk that an asset’s share price can change unpredictably at any given time. The size of any given price movement is relatively unknown, which therefore increases the risk.
Large swings are considered to be highly volatile, whereas smaller swings in an asset’s price are considered to be of low volatility or stable. Typically, day traders thrive when a stock’s trading price experiences large swings because it means that they can capitalize on volatile price movements.
7. Choose Your Strategy
Once you have chosen your S&P 500 broker and the asset you wish you trade, you need to implement a trading strategy.
There is a range of strategies available depending on your risk tolerance or how active you will be in the market. In all scenarios, being aware of the S&P pre-market price will give traders an insight into the opening value of the asset, which helps with the development of a day trading strategy.
For example, an unusually high close/pre-opening market price might prompt a trader to sell or short the index in anticipation of the price falling when the market opens. This strategy is an example of intraday trading on the S&P 500.
Other traders may analyze the index’s performance over a longer time, which would typically lend itself to a swing trading strategy.
Some market participants trade the S&P 500 and other assets as their full-time jobs, and will often share free advice online on developing a solid trading strategy. When you are seeking trading tips online, however, be wary of any paid groups or courses as these are usually “too good to be true” and can sometimes be scams designed to target rookie investors.
Final Word On Trading The S&P 500
The S&P 500 has been traded for over 60 years and remains the leading index in the USA. It is popular with day traders because it gives a good indication as to how the US market is currently performing, which can provide insights into other asset classes.
It is worth noting that the S&P can be heavily influenced by how individual companies with large weighting are performing. For example, if Tesla’s share price falls due to an Elon Musk tweet, then the index might also be slightly affected by this as the market reacts.
Overall, the S&P 500 is a solid asset to have in your portfolio, and due to its popularity, there is a wide range of helpful resources available online. Use our list of the best brokers for trading the S&P 500 to get started today.
When Did The S&P 500 Futures Start Trading?
The Chicago Mercantile Exchange (CME) first introduced S&P 500 futures contracts in 1982, and subsequently released the S&P 500 E-mini option in 1997.
What Is The Trading Symbol For The S&P 500?
When trading the S&P 500, the market ticker symbol which represents the index is .INX
Can You Invest In S&P 500 With Most Leading Brokers?
Is The Nasdaq Or S&P 500 Better?
The Nasdaq and S&P 500 are two different indexes. The S&P is a much broader representation of the US market as it includes stocks that are listed across different markets and sectors, whereas the Nasdaq index is exclusively made up of Nasdaq-listed stocks, over 50% of which are technology focused. When choosing between trading S&P 500 and Nasdaq, the choice should be made based on the trader’s market knowledge and risk tolerance while taking into account the difference between the underlying structures.
What Time Does The S&P 500 Stock Start Trading?
The NYSE and the Nasdaq both open at 9:30 AM and close at 4:00 PM EST. The S&P and all of the stocks included in the index are also bound by these timings.
Can I Trade The S&P 500 On MT4?
Trading the S&P 500 is available on MT4 through supporting brokers. Some brands also provide premarket/early trading and charts and tools to help identify key support levels today or over the last 10 years. Quarterly returns and historical data on dividend yields are also available at the top brokerages. See our list of the best brokers and trading apps for buying S&P 500 stocks.