Topics from basics to advanced to enhance your trading skill

What is S&P500 and how does it work?

Jan 11, 2022 07:43


The S&P 500 is a stock market index that measures the performance of about 500 companies which includes many of the largest companies in the U.S. It includes companies across 11 sectors and offers a picture of the health of the U.S. stock market and the broader economy.

What is S&P 500?

Standard and Poor’s 500 is abbreviated as S&P500 and  it is a stock market index that tracks 500 publicly traded domestic companies in the United states. Many investors consider it to be the best overall measurement of American stock market performance.

Standard & Poor’s, which now sponsors a number of market indexes was started as investment information service begun in 1860 by Henry Varnum Poor. In the year 1941, Poor’s original company, Poor’s Publishing, merged with Standard Statistics which was founded in 1906 as the Standard Statistics Bureau and named it as Standard and Poor’s Corporation, a provider of financial information and analysis.

The S&P 500 index was initially called as the Composite Index and later as Standard & Poor’s Composite It was launched on a small scale in 1923 and started tracking 90 stocks in 1926 and expanded to 500 in 1957.

The stocks with a larger market valuation have a greater impact on the overall index. The companies that are listed on the S&P 500 gives a representation of  who’s who of U.S. industry, and additions and deletions from the list often indicate market trends

What companies are included in the S&P 500?

Meeting certain criteria is a must to get included in the index. Among other things, companies must:

  • The Company must have a market capitalization — which refers to the total value of the company’s outstanding shares — of at least $8.2 billion.
  • It should be based in US
  • The company must be must listed on an eligible U.S. exchange. (Real estate investment trusts, known as REITs, are eligible for inclusion.)
  • The company should be structured as a corporation and offer common stock.
  • The company should have positive as-reported earnings over the most recent quarter, in addition to over the four most recent quarters added together.


Because of the above criteria’s most stable corporations and the country’s largest companies can only be included in the S&P 500. The list of the companies is reviewed and updated quarterly.

As of December 23, 2021, the 10 largest companies, with a weighted market cap, in the S&P 500 are

1.  Apple Inc.

2. Microsoft Corporation

3. Inc.

4. Alphabet Inc. Class A

5. Alphabet Inc. Class C

6. Meta Platforms Inc. Class A

7. Tesla Inc

8. NVIDIA Corporation

9. Berkshire Hathaway Inc. Class B

10. JPMorgan Chase & Co.

The makeup of the S&P 500 industries reflects that of the economy.

As of December 23, 2021, the S&P 500 sector breakdown included:

  • Information Technology: 27.9%
  • Health Care: 13%
  • Consumer Discretionary: 12.8%
  • Financials: 11.4%
  • Communication Services: 10.8%
  • Industrials: 8%
  • Consumer Staples: 5.6%
  • Energy: 2.9%
  • Real Estate: 2.6%
  • Materials: 2.5%
  • Utilities: 2.4%

Over the past 10 years, the S&P 500 has posted average annual return of 10%. However, kindly note  this doesn’t mean you can expect to get a 10% return on your investment in an S&P 500 index fund every year. In 2020, it posted a return of 15.15%.

As the companies within the index are so diverse and are collectively worth around 80% of all US stocks total value, these performance figures are widely seen as the overall performance of the US stock market.


  • Many of the most successful companies in the world are included in the S&P 500. 8 of the largest 10 technology companies in the world are produced in Silicon Valley. All of these 8 rapidly growing companies are included in the index.
  • The index is the most liquid in the world.
  • The S&P 500 is widely followed and used as a benchmark for funds and the performance of the stock market in general.
  • Trading instruments like CFDs, futures and ETFs which are based on the index are amongst the cheapest and most liquid to trade.



  • Performance of certain sectors will have meager effect in the S&P 500 Index as so many companies are included in the list.
  • However S&P 500 index include most of the largest companies of the world, few notable companies that does not headquarters in the US are excluded. 
  • Big technology companies like Apple, Amazon, Microsoft etc. largely influence the S&P 500 Index. Suppose these companies underperform, it will affect the index significantly. However, the effect won’t be so visible since the index acts as a benchmark for most investments to be measured.

Many reasons can be given to invest in the S&P 500 index for the long term. Just one share of an S&P 500 can give indirect ownership of 500 companies. However, while the returns are respectable, they’re relatively modest.

To actively trade the index is one best way to improve returns. With CFD trading of the index, you can make gains from the all the positive and negative short-term movements which ultimately result in modest annual returns.

You can also get benefited by using leverage. As with leverage, you can increase the size of returns , However kindly note use of leverage is risky and may result in the loss of capital invested.

Interesting fact about S&P 500 is Buffett even left instructions for 90% of his estate to be invested in S&P 500 funds upon his death. He said “There’s no better than America.”


If you wish to include only one index in your trading portfolio, it should probably be the S&P 500. Since S&P 500 includes many of the most successful and rapidly growing companies in the world. By choosing  S&P 500 index, you’re trading  Apple, Alphabet (Google), Microsoft, Amazon, Facebook and countless other great companies. Moreover, the index is very liquid and cheap to trade.

However, since it is traded by so many people, trading on very short timeframes is challenging. It is a very good index to trade if your time horizon is 10 to 30 days.

You can trade index CFDs with Winstone Prime. If you want to get started, you can open a risk-free demo account today. This will allow you to get used to the trading platform and learn more about trading the S&P 500 Index at no risk or cost. Open account and start trading S&P 500 if trading is passion already.

Loading spinner