People have added indices to their trading strategy, diversifying their approach and expanding into new markets. But what are indices? Read on to learn more.
What are indices in trading?
Indices are the plural of an index, a group of exchange-traded stocks and shares that are brought together to assess and analyse a particular market.
The primary aim of indices is to offer insight into the performance of particular markets and sectors. However, an index is also important in trading. The value of these indices is subject to market forces, and the price can fluctuate over time. This represents an opportunity for traders, and many seek to profit by speculating on these price movements. In fact, indices can be very useful for traders - the index gives them a way to connect with a broad market with just a single position.
If the market moves in the way the trader expected, they will make a return. If it does not, the trader absorbs a loss instead of moving oppositely.
How does index trading work?
Before you begin trading indices, you'll first need to get to grips with the different mechanics of the market. Here’s what you need to know:
Contracts for difference (CFDs)
Index trading on leverage
Calculating the value of indices
How to trade indices
Follow this step-by-step guide and start opening your first positions.
1. Sign up for a trading account
You'll need an account before you can trade indices. It only takes 3 minutes to sign up on our site!
2. Download a trading platform
A trading platform provides all the tools you need to analyse the market and make trades. Get familiar with its features and other tools it provides.
3. View indices on the dashboard
Enable indices on your trading dashboard to follow the price movements and analyse changes.
4. Select the index you want to trade in and open a position
Open a trading position on an index that suits your trading style. Remember to put stop-loss and take-profit tools in place to protect the trade and monitor its movements regularly.
5. Close the index position
Close the position to complete the trade and to absorb losses or take profits.
Get started today - Trade indices with TMGM
Take your first steps into indices trading today with TMGM. It only takes 3 minutes to sign up!
The process of trading an index is similar to trading stocks and shares. Indices bring together different stocks and shares within a single index, and traders speculate on the rise and fall in the instrument's price.
Forex involves speculation on the relative price movements of currencies in a pair - an entirely different proposition. Forex pairs are generally less volatile than indices.
Traders then speculate on the price movements of this index, predicting whether the index will move up or down in price. As many different stocks are included in a single index, the outliers cancel one another out, so indices trading tends to be less volatile than individual stock trading.