Indices
Tight spreads and commission of 4 USD for the trading volume of 1 million USD.
What are indices?
Indices are the plural form of an index, and before exploring the different types of stock market indices, let’s define what an “index” is. An index is a statistical indicator that reflects changes in the economy. In the context of financial markets, an index can be described as a portfolio of securities that represent a particular market or segment of the market.
To put it simply, consider “A” as a collection of 50 high-volume stocks that are traded daily; this serves as an index encompassing those 50 stocks, which determine market movement.
A stock index serves as an indicator of the overall performance of the market or a specific sector. It acts as a benchmark against which the performance of portfolios—whether belonging to individual investors or mutual funds—can be measured. We recommend that once you select an index, you take time to research its constituents, including the sectors represented, the type of market, the companies listed, their volatility, and relevant news flows.
Terms like DAX, Dow Jones, and FTSE are familiar to many, often appearing in news feeds. For investors, changes in these indices are significant, as any fluctuations can create stress for both traders and brokers. These changes can also prompt policymakers to adjust their strategies in response to economic conditions.
Let’s discuss indices and how we trade them.
Newcomer traders often find themselves puzzled by the question, “What are indices?” Every stock market features major indices that report the performance of key shares listed on their exchanges. Market indices serve as a way to gauge overall market sentiment, providing signals on whether the market is in a bullish or bearish phase.
Trading indices instead of individual stocks allows you to gain exposure to all companies included in those indices, as they encompass numerous firms. This broader exposure can help diversify your investments and reduce risk.
Indices definition and their role in the trading process
The definition of technical indices can be simply summarized as “exchanges’ shares divided into sub-sectors or industries.” This division allows traders multiple ways to engage with the market, enabling specific analysis of different commercial or industry sectors. For example, the company “Shell” is listed as an individual stock on the exchange and is also part of the oil and gas index.
Indices reflect the performance of all oil and gas shares listed on the stock exchange, with the oil and gas index being a component of the broader market. When an investor assesses their trading strategies and considers how to buy indices, they gain a comprehensive view of the market, including the specific performance of the oil and gas sector. This approach allows them to maintain a strong focus on individual stocks, such as Shell, while also understanding overall market trends.
2017
Average spread for DE30Cash on ECN and Prime accounts – 0.5 EUR.
2018
Fast order execution from 0.1 seconds.
2019
Minimum lot and step of trading volume for all indices – 0.01.
2020
Commission for the trading volume of 1 million USD from 4 USD depending on an account type.
For newcomers to trading, the idea of easily boosting profits by trading indices is appealing. Here’s how to approach trading on indices and why they are often preferred over individual stocks.
As previously mentioned, indices provide a broad perspective on the international market. By trading indices, you gain insight into the companies represented, their conditions, and the shares they encompass. For example, trading the FTSE 100 index gives you an understanding of the movements of the top British firms.
Indices also help narrow your focus to a specific selection of shares, reducing confusion from the vast array of stocks available. Their diversified nature minimizes the likelihood of significant price fluctuations based on unexpected news announcements.
Before buying indices, consider these key factors:
Understand the Components of the Index: Examine what makes up the index. For instance, if an index comprises equities, determine whether these equities come from various market sectors or just one. This understanding helps you focus on relevant updates or news that may affect the index’s value.
Analyze Correlations with Currencies: Domestic indices typically correlate with their country’s currency and economic conditions. For example, when demand for US dollars rises, US indices often increase in value. This occurs because foreign investors must purchase dollars to invest in US stocks, driving up the indices.
Observe Links to the Commodities Market: Pay attention to any connections between the commodities market and the domestic index. For instance, oil-exporting and importing firms can influence their respective indices. A country that imports oil may see its index decline with low crude prices, while an oil-exporting country’s index may rise.
Monitor Changes in Index Listings: Keep an eye on any changes in the shares that constitute an index. Mergers, acquisitions, and shifts in market capitalization can lead to changes in index composition. For example, if a company like “X” experiences a decline in market capitalization, its shares might be replaced by another firm with a larger market cap, as “X” may no longer meet the index criteria.
By considering these factors, you can make informed decisions when trading indices, enhancing your potential for success in the market.
Start Deposit
Ready to experience the safety and security of Dfxone? Open an account today and join thousands of traders who trust us with their investment needs.
Start now