One of the trades that attract all sorts of traders, especially newbies, is indices. And it’s honestly not a surprise because due to this trade, there have been many successes for starting traders compared to other trades. And this is just simply because this allows you to trade in all markets without having to open too many positions.
So indices trading, in a nutshell, allows you to explore an entire market all at once! And a popular way investors do so is with CFDs. Contract of difference allows people to own a fraction of a share without taking physical ownership, but only its underlying asset, which is pretty convenient.
And in this market, you can profit in various ways, whether the market is bear or bullish or whether you open a long position or a short position. That’s why this market is ideal for starting traders. But of course to guarantee a profit, one must be knowledgeable and skilled.
So before wagering your money, consider knowing more about your desired market and hone your skills. To help you out, start by knowing the basics of trading indices, everything you need to know is down below!
What does index trading mean?
This trade is a buying and selling of a certain stock market index. And just like any other trade, you speculate on an asset’s market value, and if the market shifts to your favour, you profit. An index is an instrument that you may use to track a group of assets’ performance consistently.
Indexes often track the performance of a diverse group of securities meant to represent a certain market segment. And why indices trading is so popular because of passive index investing. This allows you to replicate the profit of popular indices at a low cost.
This is why various starting traders are attracted to indices trading, and when they crave challenges, they move on to popular indices like S&P 500 Index and so on.
What are popular indices to trade?
Working with world-renowned indices comes with great benefits, one being their credibility. So if you’re planning on kickstarting your trading journey with popular indices, here’s a list of 12 companies to consider:
- Standard & Poor’s 500
- Dow Jones Industrials Average
- Dow Jones Industrials
- Nikkei 225
- Hang Seng
- ASX 200
- FTSE 100
- Euro Stoxx 50
- DAX 30
- CAC 40
- UK FTSE 100
What are the two main types of online indices trading?
When trading with indices online, there are two main types you need to be familiar with: index cash CFDs and index futures CFDs. Each of these has its own set of processes, objectives, functions and so on. So to better know each type, here’s a rundown:
Index cash CFDs
Cash indices are typically thought of being short-term investments due to their narrower margins based on spot pricing. To avoid incurring overnight transaction fees, cash CFD traders typically don’t hold holdings overnight and instead restart deals the next day. And since it’s usually considered a quick trader, it has no expiry date.
Index futures CFDs
Index Futures CFDs are typically favoured by traders looking to make medium to long-term investments since they involve a contract based on a value for futures contracts. This is because no overnight financing or exchange fees are associated with this kind of deal.
But this one has an expiry date, in trading terms, a “rollover.” This contract is agreed on by two parties (buyer and seller) on a fixed price the buyer has to fulfil at a set future date.
What affects the price of indices trading?
5 major external forces primarily affect the price of indices. So to know what to keep a lookout for when investing are:
- Global news – When natural disasters arise like earthquakes, massive floods and so on, this can affect the country’s economic state, harming indices.
- Commodities – Commodity equities may make up a portion of an index, and as a result, any market swings may have an impact on the index’s price.
- Index reshuffle – An index reshuffle occurs when a company adds or removes a stock index, which results in a shift in prices.
- Economic news – These consider central bank rates decisions, trade agreements, NFTs and so on, any changes on their end can affect the price of an index.
- Company news – Any grand news from a company such as changing leadership, or getting into a merger can affect the price of indices.
Knowing what you know now, you can confidently say you understand a reasonable sum about indices trading. And since you know the basics of this trade, you can now consider if this trade is for you or not before jumping in.
So use your new-found information and think about it, are indices trading for you or not? But either way, it still benefits you to know a hefty amount about what this trade is and how it works. Because who knows, this might be your niche trade, or you might get interested in it in the future!