Trading indices is not like the normal forex or commodity trading where one invests in the currency of a particular country. It is a reflection of the current situation of an economy or market. In general, when trading indices or index, a trader has the opportunity of investing in a large part of the market. For instance, when trading stock index, you have the option of investing in the S&P 500, the Dow Jones, NASDAQ, or the FTSE 100.
Why trade indices?
For beginners, there are three advantages of trading indices instead of dealing in shares. Firstly, you have less technical analysis to analyze since you have only one chart. Secondly, trading indices comes with more available leverage, unlike trading shares. Furthermore, traders don’t have to analyze various financial reports because they focus on the bigger picture of the market.
How to trade indices
As a beginner, you can do this through index future, CFD (contracts for difference), options, or ETF. However, it is important to know each weakness and strength. Another important issue for beginners is when to trade indices. Well, that depends on your learning process. However, most professional traders trade when there is high volatility in the market especially when the market has begun or is about to close.
Each index measures the stock of a particular group. Most times, the group is a country, which can represent a particular industry sector such as industrial or technology. The following are some popular indices in the world.
- S&P 500: consist of the biggest index in the world. It represents 500 companies from the United State
- Dow Jones: comprises of the 30 biggest industrial companies in the United State
- CAC 40: Comprises of the best 40 French companies
- FTSE 100: Comprises of the top 100 companies in the United Kingdom
- NASDAQ 100: A group of the 100 major tech-related companies in the United States
As time goes on, it is necessary to familiarize yourself with these companies. Remember, indices are just a reflection of the value of the companies. If you want to be a professional in no time, it is important to get a mentor because they can save you common mistakes beginners make when trading. They can help you avoid common mistakes most traders make such as:
- Not having a trade winner strategy
- Trying to revenge from a lost trade
- Compulsive trade against the current trend
- Not learning from previous mistakes
Indices such as DAX, Nasdaq, Dow Jones, FTSE, and S&P500 are products worth trading. These have consist of trends that gives beginners confidence when trading.
Are you ready to begin your indices trading, let us know through the comments below!