Metals

Indices Trading and Index Trading

Indices trading, alternatively also known as Indexes trading, can be defined as a statistical measure to evaluate the performance of a basket of stocks representing a particular market sector or section. For example, the “US S&P 500” is one of the most well-known indices which tracks the 500 largest companies (by market capitalization) listed on the US stock exchange.

Since an index is a number that reflects on the market or economic health, direct buying and selling are not possible. Instead, indices can be traded via index funds, index futures, options, ETFs (exchange-traded funds), or CFDs (contracts for difference). CFDs are an attractive option for traders as they are leveraged products, which means that profits can be booked on both the rise and fall in the index prices.

Indices are also considered better than stocks because of the high liquidity which is present because of the huge volume of trades made in individual constituent stocks. This reduces the volatility for day traders who want to make a profit in intraday price fluctuations. Another aspect is that indices are the best assets if you want to implement strategies based on political and economic news.

• Economic News - The market sentiment is a major driver for indices
• Commodity Prices - Certain commodities such as oil can heavily influence a country’s economic performance.
• Company Events and Announcements - Companies that weigh heavily in an index can drive substantial price changes on the basis of important events and announcements.
• Change in the composition of an Index - Periodic rebalancing of indices is done globally where some companies are removed, and different companies take their place.