Indices offer a great way for you to trade on the overall value of a regional index without having to analyse individual companies or stocks. The index itself represents the value of a group of stocks from one country and shows the overall, current, and historical performance of that stock index.
There are many types of indices available to trade at spot price or through forward trading. Economic news such as interest rate freezes, inflation and rises in spending can all cause the value of Indices to rise or fall. In some respects, bigger companies can affect the performance of a particular index due to their size and market dominance.
Indices are traded the exact same way as forex or stocks. You open a trade in one direction, and you earn money if the price goes in that direction. If the price comes against you, then you may lose money.
As indices are made up of groups of firms, there are a number of different factors that affect the price of the index. The price movement of an index is likely to be much smoother than other financial instruments, as one individual stock can’t bring about a huge rise in price. However, there is significant volatility in indices as they can reflect broad political and economic shifts. Since indices trend a lot, the best strategies to trade them are trend follow strategies.
Each index measures a group of the stock market. Usually, the group is a country but it can be just an industry sector, like technology or industrial. Here are the most popular:
Dow Jones (DJ 30), is made up of the 30 biggest industrial companies in the U.S.
S&P 500, It represents 500 companies from the U.S.
NASDAQ 100, measures the 100 major tech companies in the U.S.
DAX 30, it’s the German index. It includes the 30 leading German companies.
FTSE 100, groups the top 100 companies of the U.K.
CAC 40, represents the best 40 French companies.
NIKKEI 225, it’s the index from Japan. It contains the 225 biggest companies in the country.
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