An
index is a means by which to measure the performance of a group of assets. In
terms of trading, it’s a list of publicly traded companies along with their
stock prices. The Dow Jones is one of the most well-known indices in the world.
Index trading is the
buying and selling of a certain stock market index, with investors speculating
on whether the price of an index will rise or fall – this determines whether
they will be buying or selling. A trader in indices does not buy any ‘real’
underlying stock but rather a group of stocks’ average performance.
How Is a Stock Market Index
Calculated?
Most
commonly, the market capitalisation method is used. This term refers to the
value of a company’s stock multiplied by the total dollar market value. To
determine this figure the number of outstanding shares must be multiplied by
the current market price per share.
What Factors Can Move Index Market
Prices?
External
forces are largely responsible for the movement of index prices. Times of
uncertainty that have a negative impact on a nation’s economy tends to result
in prices decreasing. Examples of factors that can impact the price of an index
include fluctuations in the commodities markets, global and economic news,
index reshuffles and important company news, such as a merger or the release of
financial results.
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The Benefits of Trading Indices
Reputable,
licensed online brokers like T4Trade offer
traders the facility to trade indices conveniently. There are many benefits to
this option, including the ability to take long or short positions and the fact
that just a single trading account can be used to access multiple indices from
around the globe. Added to this, very little capital is needed to start index
trading, and a margin as low as 5% is required to open up a position.
Index
trading is widely considered as being accessible to both beginner and seasoned
investors.
Ways to Trade Stock Market Indices
Index
Cash CFDs featuring tighter spreads can be traded and are generally considered
as most suitable for short-term investment. Alternatively, Index Futures CFDs
can be traded, which tend to be preferred by traders looking for medium to
long-term investments; these CFDs relate to a contract that’s based on a price
for future delivery.
