FXTM information and reviews
FXTM
92%
IronFX information and reviews
IronFX
91%
Libertex information and reviews
Libertex
90%
FxPro information and reviews
FxPro
89%
FIBO Group information and reviews
FIBO Group
88%
FXCM information and reviews
FXCM
87%
EUR/USD
1.2084
GBP/USD
1.407
USD/JPY
109.5559
USD/CHF
0.9083
USD/CAD
1.2111
EUR/JPY
132.3867

Choosing a Trading Instrument: How to Trade Indices


By now, you must be familiar with the names of the world’s major stock indices: Dow Jones, S&P 500, NASDAQ, DAX30... But did you know that they can be traded as CFDs, just like stocks and other assets? What are the main features, advantages, and pitfalls of index CFD trading? Let’s figure it out right now.

What are stock indices

Stock indices indicatechanges in the value of certain groups of stocks. An index reflects the dynamics and the current state of the stock market as a whole. For example, FTSE 100 shows changes in the stock price of the 100 companies with the largest market capitalization traded on the London Stock Exchange, while S&P 500 deals with the 500 largest US companies.

What does Dow Jones indicate?

Indices have occupied an important place in the financial markets for a long time. The first index was created by Charles Dow back in 1896 and was named the Dow Jones Industrial Average. It tracks the development of the industrial component on the American stock markets. Initially, it included the 12 most influential American companies, today their list has expanded to 30.

Since it’s impossible to track the stock price of every company in a country, all stock exchanges have their own reference stock index or several indices to help traders and investors determine the overall performance of a particular market. Stock indices are indispensable for analyzing the performance of financial markets and individual companies in these markets.

How are stock indices calculated?

At the time of the first index, calculations weren't easy. Nowadays, there is a universal formula used by most stock exchanges: a weighted average formula for determining the value of an index.

The formula looks like this: Stock weight = Stock price x Number of stocks / Market capitalization of all stocks

Benefits of trading indices

Index trading is very popular with traders due to the highest profitability. Let’s turn to specific numbers for illustrative purposes.

These numbers refer to index contracts only, excluding margin rates when using CFDs. The best trust funds show a yield of 10–15% per annum. Minus the fund’s commission. The numbers speak for themselves.

Index trading strategies

The most important trading strategy in the index market: not to try to keep up with every trend. Determining the right amount of deposited funds to use for trading with this instrument is the key to success.

Let’s look, for example, at the one of the classical trading strategies for indices:

In this case, when the chart crosses the lower level, a buy order is opened, if the upper one, then a sell order. It is better to place trades on the market without using pending orders, to avoid triggering false signals. We advise you not to open orders less than an hour before the close of the trading session, as well as if the day opens with a strong swing.

In the arsenal of Grand Capital there are CFDs on 12 indices, among which you can find major American, European, and Asian indices.

#source

Related

How to Pick the Most Reliable Forex Expert Advisor

It's natural for an ambitious Forex trader to strive to be into action all the time and utilize every opportunity to get profits. Unfortunately, it's physically impossible...

How Does Cryptocurrecy Work?

When Bitcoin came along, it introduced a whole new world of digital currencies that are powered by various technologies, such as blockchain and cryptography...

Understanding Cryptocurrency Market Capitalization

If you have been around cryptocurrencies like Bitcoin and Ethereum for some time, chances are you have heard the term market cap discussed. It is something that helps...

Swing Trading: a Trading Style for Professionals

The classification of traders might seem sketchy. However, there is a clear division between them based on the period of holding an open position...

Deepen your Understanding of Crypto Trading

Cryptocurrency trading, or more briefly crypto trading, is simply the exchange of cryptocurrencies. Just like in Forex, you can buy and sell one cryptocurrency for a fiat currency...

Best Forex Expert Advisors for Profitable Trading in 2021

As many of you know, the foreign currency markets are open for trading 24/5, which makes it very hard for a human to keep track of everything that's going...


Editors' Picks

© 2006-2021 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.