Why Trade Indices

Indices are preferred among traders for their high levels of liquidity and tradability. Read on for more, including on why they are a popular choice.

Why Trade Indices

An index is made up of a basket of stocks from a particular exchange. It measures the price performance of said group of stocks. Because of that, their values correlate with the respective prices and, therefore, are constantly changing — they increase if the prices go up, and fall if the prices go down.

Through our index CFDs we offer our clients access to some of the most popular global indices, such as the US30 (the underlying market is the Dow Jones Industrial Average), SPX500 (US S&P 500), UK100 (FTSE), FRA40 (CAC), JPN225 (Nikkei 225) and AUS200 (ASX200).

Indices enable traders to diversify their portfolio, while trading global equity market movements without having to directly own any stocks.

They also make a great hedging instrument. In other words, traders can go short while investing long in some other equity stocks from the same market, or go long when it is the other way around. The ability to buy or sell any index is among the key attractions for traders. Indices trading offers:

  • Efficient tracking of a group of equities
  • Access to global economic trends
  • High market liquidity
  • No restrictions on selling stocks short
  • Lower margin requirements

Because indices are numbers, you cannot own them directly. Instead, to trade them you would need to choose a product that is indicative of their performance, which tracks the underlying index’s price, such as the US30, SPX500, UK100, FRA40, JPN225 and AUS200.

Compared with individual shares, they are more volatile and, therefore, offer greater opportunities but also increased risk.

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You buy 10 contracts of the AUS200 at a price of 5750. The market later moves in your direction, and is trading at 5785. You then close the trade. The profit will be 5785 - 5750 = 35 point (1 contract = AUD1 per point movement); therefore, the total profit is 35 x 10 = AUD350.

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Losses can exceed deposits. Ensure you fully understand all risks involved and seek independent advice if necessary.
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