The performance of a country’s economy, a market sector, or an exchange can be tracked by looking at an index, which is a collection of shares.
The Dow Jones Industrial Average, S&P 500, FTSE, DAX, ASX200, NASDAQ, CAC, EuroStoxx, and Nikkei 225 are the most actively traded indices.
Due to their numerical nature, indexes cannot be traded directly. For this purpose, a financial tool like CFDs is required. In fact, when it comes to CFDs, indices trading is by far the most popular.
Why are indices a popular investment choice?
Global indices trading is interesting and profitable, with a wealth of untapped opportunities waiting to be discovered.
We think you’ll find at least one index to be a welcome addition to your portfolio for the five reasons below.
1. Straightforward and affordable
Buying a Contract for Difference (CFD) on an index is obviously more convenient and less expensive than buying or selling each individual stock that makes up the index.
Furthermore, although trading equities necessitates an in-depth financial understanding of any one company, indices trading provides prospects for trading with simply a broad, unbiased perspective of the economy.
If you want to bet on the success of the world’s leading financial markets and the leading stock markets without having to analyse the performance of individual firms, trading indices is a perfect option for you.
2. A stable asset
Unlike currencies, which can have long periods of consolidation followed by violent whipsaws, indices rarely see protracted periods of consolidation. At any one time, an index will have a clear rising or negative trend.
The benefit is a more reliable investment that is less susceptible to sudden price swings. Yet, due to the high volume of trading in individual equities, indices provide enough volatility for traders to identify several opportunities to make a profit.
3. An easy way to diversify
You wouldn’t risk everything on a single stock when trading indexes. You can diversify your holdings among the world’s most successful technology companies by trading the US Tech100, which is based on the NASDAQ 100, for example.
Trading the Euro Stoxx50 gives you access to a blue chip index composed of the leading companies in the Eurozone’s 50 “supersectors.” If you invest in a broad range of companies through a single asset, even if some of those companies fail, the index as a whole can still go up.
4. Less risky than trading individual stocks
Although index trading is safer than other forms of trading, indices are nonetheless susceptible to market swings owing to events like geopolitical unrest, political instability, inaccurate economic forecasts, and natural disasters. Yet, unlike a company, an index can’t get sued, go bankrupt, or get outcompeted by rivals.
5. Reliable and consistent trends
The movements of indices are directly proportional to the movements of the stocks that make up the index. As a rule, stocks within the same sector will move in tandem, making it easier to forecast the direction of broad market indices that have a heavy weighting in that area, for instance during bull markets.
