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The SPY ETF is one of the oldest and most popular exchange-traded funds. It is designed to track the S&P 500 index, itself, the biggest index in the world. The S&P 500 acts as the benchmark stock market index of the United States and the SPY ETF fully replicates its movement.
The SPY is structured as a unit investment trust (UIT) that allocates a fixed capital amount to large and mid-cap stocks in the United States. The SPY is well diversified and offers great exposure to the largest and most lucrative stocks and industries in the United States.
Also known as the SPDR S&P 500 trust, the SPY is the most traded ETF in the world, and it is considered in most AUM (assets under management) funds.
It was launched in January 1993 as practically the first ETF in the United States, by the State Street Global Advisors (SSgA). It trades on the New York Stock Exchange Arca under the ticker symbol SPY.
As it mimics the biggest index in the world, the SPY has always been a solid bet for investors over the years. Since its inception, it has averaged annual returns of about 9%. Its price history shows a financial asset that has delivered consistent results for investors over the years.
The fund started out at circa $44 and maintained an upward trajectory that saw it hit highs of circa $150 by the turn of the millennium.
The multiyear rally retraced, dragging the fund to lows of circa $80 by September 2002. The uptrend then resumed and managed to take out previous highs of just above $150, before the 2008 global financial crisis inspired a tumble to lows of circa $75 by March 2009.
Since then, the fund has sustained a rally that has seen it hit it an all-time high of circa $340 in 2020.
S&P 500 ETF Composition
The SPY ETF is composed of 500 stocks selected by a committee based on market capitalization, volume, liquidity and industry. The primary objective of the ETF is to deliver results that correspond to the price and yield of the S&P 500 index.
For a stock to be included in the fund, it must meet the following criteria:
- High market capitalisation (over $6 billion as of August 2020)
- High trading volume
- The stock must be listed on the NYSE or NASDAQ
A 9-member committee makes the selection, and the number ‘500’ does not necessarily mean 500 stocks. In some instances, companies such as Alphabet have two or more classes of shares, which eventually may result in more stocks being included in the ETF.
The fund is scheduled for quarterly rebalancing, but the committee can decide to set new rebalancing schedules depending on market performance.
Some of the biggest names that make up the SPY as of August 2020:
- Facebook Class A
- Berkshire Hathaway Class B
- Alphabet Class C
- Alphabet Class A
- Johnson & Johnson
- JP Morgan Chase & Co
- Visa Class A
Large-cap companies account for over 91% of the SPY. In terms of sector breakdown at the time of writing, the technology sector carries the greatest weight, followed by healthcare and then Consumer Discretionary. In total, the SPY gives investors exposure to over 25 sectors in the United States.
Factors Influencing the Overall Price of the S&P 500 SPDR
The sheer size of the ETF means that there is a multitude of factors that can impact the price of the ETF at any given time, including political, economic, historical or even corporate.
Political factors, such as general elections and the theory of the presidential election cycle, which stipulates that stocks perform better during the second half of a presidential term, usually reflects on the overall price of the SPY.
The S&P 500 SPDR tracks the biggest companies in the US and the world. Geopolitical factors such as trade and tariffs as well as overall global stability (both economic and political) can have a significant impact on the ETF’s price.
Sectorial or industry happenings can also influence the price of the SPY. Notably, changes in the technology and healthcare sectors can impact the overall price of the ETF because of their big underlying weights.
Why Trade the SPDR S&P 500?
- Liquidity – SPY constituents are some of the biggest and most traded companies in the world. This guarantees liquidity of the fund practically at all times.
- Smooth Price Action – By investing in multiple large-cap stocks, the overall price action of the SPY is exceptionally smooth, with no sudden spikes or volatility except in extreme crisis periods.
- Vast News Coverage – The SPY is the oldest and most tradable ETF in the world. This means that there is sufficient media coverage of the assets as well as its biggest constituents. For investors, this is particularly important because it becomes easy to gain valuable information on the underlying technical, fundamental and sentimental factors that may impact the price of the SPY ETF.
Benefits of Trading SPDR S&P 500 with AvaTrade
- Global Reputation – Trade SPY with a highly reputable and regulated company that offers its services globally.
- Regulation – Trade SPY with a broker that is regulated in 7 jurisdictions around the world. Enjoy transparent trading services in a safe and secure environment.
- Robust Trading Platforms – S&P 500 SPDR is available on the AvaTrade MT5 platform. Plus, trade many other assets available on our other platforms such as MT4 and AvaOptions.
- Long or Short – Go long or go short when trading the S&P 500 SPDR and trade in both rising and falling markets.
- Leverage – The S&P 500 SPDR is available for trading with a leverage of up to . Boost your potential returns, even on marginal price changes.
- Great Trading Conditions – Trade SPY with transparent pricing, fast and reliable execution and low spreads at all times. Take advantage of the comprehensive trading resources as well as AvaProtect risk-limiting tool.
- Customer Support – Gain direct access to a responsive and professional customer support team.
Trade the SPY ETF now with AvaTrade and diversify your trading portfolio.
S&P 500 SPDR FAQ
- Why should I trade the S&P 500 SPDR?
The S&P 500 is the largest index in the world and acts as a barometer for the entire U.S. stock market. Trading the S&P 500 SPDR is like taking a position in the whole U.S. market. If you feel overall bullish about the market because you’ve noticed it trending higher you can use this ETF to go long and capitalize without having to find an individual stock. And with AvaTrade CFDs on the S&P 500 SPDR you can just as easily go short when you’re feeling bearish about the U.S. markets.
- Is the S&P 500 SPDR the best fund for trading U.S. markets?
If you are looking for a fund that gives you access to the entire spectrum of the U.S. stock market, then the S&P 500 SPDR could very well be your best option. It is one of the index funds that was created first, because a need to trade in this was seen and filled. Because the fund tracks the S&P 500 it allows for a diversified position in the U.S. markets without buying a whole basket of stocks. It can also be useful for trading economic releases such as the U.S. GDP or non-farm payrolls data, where you know the market will react, but aren’t sure about individual stocks. With the S&P 500 SPDR you can easily trade on those news releases.
- What’s the best strategy for trading the S&P 500 SPDR?
Having a trading strategy for the S&P 500 SPDR is crucial to avoid market noise, and to avoid your own emotions when trading. Some traders prefer to use a fundamental strategy that’s based primarily on U.S. economic data such as GDP and employment data. Interest rates can also have a large impact on the S&P 500. Others prefer to use technical analysis when trading the S&P 500 SPDR. This group can choose from a selection of price oscillators, trend lines, support and resistance levels, moving average, and triangle patterns, just to name a few. The signals provided by technical analysis are useful in increasing the probability of a trade being a winner rather than a loser.