What is Index Trading?
Index Trading is unlike commodity trading where a trader invests in a commodity or Forex trading where one invests in a currency. An index is basically a figure that reflects the health of a market or an economy, so when you invest in an index you are essentially investing in a fund that mirrors the movement of the index. What index trading enables you to do is to invest in a very large segment of a market, or even an entire market itself. For example, in stock index trading, you have the option of investing in the FTSE 100, NASDAQ, the Dow Jones, or the S&P 500, among other indices, all of which reflect different broad market properties. By investing for instance in the Dow, you would be investing in a significant portion of the industrial market.
Why Trade Indices instead of Shares?
Here are a few of the advantages of trading indices instead of individual shares:
• More available leverage than trading shares - The leverage possible with Index future contracts creates a profitable environment for even trades of a few percent index gain.
• Less technical analysis - investors are able to spend more time on analyzing one chart, then trying to screen through thousands of stocks for the right company
• High liquidity - The highly liquid market also creates tighter spreads which translates into less money spent per transaction. • No need to screen stocks for fundamental data - A lot of time is saved from not having to analyze financial reports. The trader will spend most of his time looking at the big picture and overall market sentiment.
How can I trade Indices?
You can trade indices via a CFD (contract for difference), ETF, index future or option. They all have their strengths and weaknesses. A CFD is not a standardized instrument listed on exchanges. It is essentially an instrument provided to speculate in the particular market you are interested in. There are stock CFDs, commodity CFDs and other types of CFDs. The advantage of CFDs is the ability to trade in mini lot size.
· No expiry date.
· No commission
· Low spreads.
· STP solutions.
To reach and download the full key information documents about Indices, please click here.