What are Indices and why trade indices?
Stock index CFDs are financial instruments that represent the value of the underlying publicly-traded companies. One leading index is the S&P 500, which reflects the collective value of the top 500 companies listed on US stock exchanges. If the overall value of those companies’ shares rises, the price of the S&P 500 will go up.
There are also indices that represent smaller companies trading on the NYSE, such as Russell 2000 index, as well as indices for various stock exchanges around the world, from Chinese China A50, Japan’s NIKKEI to Germany’s DAX and Dutch AEX.
Index trading is a relatively secure form of trading with integrated money management. The risks of trading indices are always lower than the risks of investing in individual stocks.
ndices are the least manipulative financial instruments. The price of an index changes according to the price fluctuations of the constituent companies that make up that index.
Embedded money management scheme. Trading indices, you simply don’t put all your eggs into one basket. With the NASDAQ 100 index, you diversify into the most-prominent American high-tech companies. Choosing CAC 40, you contribute to petrochemical industries.
Lower risks. Though indices can also be volatile due to factors like geopolitical events, economic forecasts and natural disasters, an index losing or gaining 10% is already a huge historical event that will often hit the news.
No risk of bankruptcy. Unlike an individual company, an index can’t go bankrupt. If a DAX 30 constituent goes bankrupt, it is replaced by the 31st company in the list of leading German companies. However, if you hold shares in this business, you’ll automatically lose your investment.
Benefit from the global economic situation. By investing in a basket of companies, you benefit from the positive or negative dynamics of the global economy. If one company fails, the index can still rise.
Trading indices with CFD
Trading indices is a way to gain exposure to global or regional markets without having to analyse the performance of individual companies. Popular stock market indices usually provide traders with a high degree of liquidity, long trading hours and tight spreads.
One of the easiest and most popular ways to trade indices is with CFDs (contracts for difference). A contract for difference (CFD) is a type of contract between a trader and a broker in order to try and profit from the price difference between opening and closing the trade.
Using CFDs to trade indices will allow you to go long or short the market without having to deal with conventional exchanges. You trade direct with your CFD broker. No matter whether you have a positive or negative view of the index forecast and predictions, you can try to profit from either the upward or downward future price movements.
Made up of a wide cross-section of liquid trading instruments, indices are extremely popular with CFD traders around the world.