What Makes Indices Trading So Popular?

Trading indices is a balanced way to trade on the world’s top financial markets without having to analyse the performance of individual company stock. Not surprisingly, this is why indices trading is so popular. Try it and see for yourself. It’s simpler than you think!

The perfect way to achieve a stable and diverse portfolio

  • Indices track and measure baskets of related stocks as a whole rather than the performance of single stocks
  • Indices provide an accurate and efficient way for investors to reliably track overall market sentiment through exposure to an entire industry
  • Indices are often composed of many different and even rivalling assets

Indices frequently asked questions

How does a stock market index work?

A stock market index is a financial indicator which measures the performance of a basket of stocks traded in the respective stock exchange. For example, the S&P 500 Index lists the top 500 companies with the highest market value in the NYSE. Usually, each stock is given a weighted average in the index in relation to their market capitalisation which determines their level of influence over the index price. The stock index price is calculated using the live prices of the enlisted stocks, and any fluctuations affect the index price according to the weighting.

Why is the stock market index important?

A stock market index often represents a specific section of an exchange such as the most valuable companies or a specific sector like finance. Indices allow investors to gauge the health and performance of business activities. They also help detect long-term trends to estimate returns on investments and identify new opportunities. The stock indices are usually more stable and predictable; therefore, many day traders prefer buying and selling index CFDs to enjoy steady trends while avoiding the multiplied risks of trading individual equities.

Which stock market index is the best indicator?

Each stock market index serves as a financial indicator for a different portion of the market. Day traders may prefer an index relevant to the distribution of markets and countries in the portfolio. For example, in the US markets, the NASDAQ Financial-100 covers the finance companies in the NASDAQ Stock Exchange, while the S&P SmallCap 600 measures the small-cap segment in the NYSE. However, if you prefer trading European stocks, the German DAX 30 or the French CAC 40 can prove to be a better indicator and option for your trading portfolio.

What is the best way to analyse a stock market index?

Each stock market index slightly differs from others, and the index details such as components, weighting, calculation and trading hours must be studied. Fundamentally, factors that can affect equity prices, like earnings reports, or represented sectors, like new regulations, have a strong impact on the index. Economic data, like GDP, can also affect the price by stirring the valuation currency. Technically, the relative stability of the trends makes support and resistance levels reliable indicators for price targets and reversal points.