Introduction to Indices - Learn Guide

Indices trading is gathering popularity among investors & trade charts are now provided alongside other trading instruments provided by a lot of online brokers. To train our beginners that want to start and begin investing in these trading instruments we have prepared a guide for learning how to trade these trading instruments. Just like Forex, CFDs, Metals & Oil; these trading instruments are also leveraged products - this is one of the grounds why these instruments have gained a lot of popularity.

What is a Market Index?

A market index follows a group of stocks from one exchange. For instance, the FTSE100 tracks the top 100 firms on the London Stock Exchange.

Popular indexes follow blue-chip companies in stock exchanges worldwide. These shares trade the most on any exchange. Blue-chip firms stand as the top ones in their country. That makes these indexes great for checking an exchange's performance.

Indices

Global traders like indices for profit chances. Brokers offer them next to currencies. Leverage applies here too, just like in forex.

Stock have various advantages over Forex, these are:

Requires less capital than Forex
Movements are based on market moves & have better trends
Moves are less volatile & more robust.

Let's describe each of the above in details:

1. Requires less capital than FX

Index trades use lots like forex. Yet they need less cash per lot than currencies. With 100:1 leverage in forex, one lot takes $1,000. For indexes, it's $5 to $150 per lot, based on the index. The table lists specs for 14 popular ones.

Australia ASX 200
Symbol - AUS200
1 Point - 0.1
Pip Value - AUD 0.1
Margin per One Lot - AUD 70
EU EURO STOXX
Symbol - EU50Cash
1 Point - 0.1
Pip Size - € 0.1
Margin per One Lot - € 40
France CAC 40
Symbol - FRA40
1 Point - 0.1
Pip Value - € 0.1
Margin per One Lot - € 40
Germany DAX30
Symbol - GER30Cash
1 Point - 0.1
Pip Value - € 0.1
Margin per One Lot - € 85
Hong Kong Hang Seng 50
Symbol - HK50
1 Point - 1
Pip Size - HKD 1
Margin per One Lot - HKD 450
Italy FTSE MIB 40
Symbol - IT40Cash
1 Point - 1
Pip Value - € 1
Margin per One Lot - € 250
Japan Nikkei225
Symbol - JP225
1 Point - 1
Pip Value - JPY 1
Margin per One Lot - JPY 90
Netherlands AEX25
Symbol - NETH25
1 Point - 0.1
Pip Size - € 0.1
Margin per One Lot - € 5
Spain IBEX-35
Symbol - SPAIN35Cash
1 Point - 1
Pip Value - € 1
Margin per One Lot - € 140
Switzerland SMI 20
Symbol - SWI20
1 Point - 0.5
Pip Size - CHF 0.5
Margin per One Lot - CHF 100
UK FTSE 100
Symbol - UK100Cash
1 Point - 0.1
Pip Value - £ 0.1
Margin per One Lot - £70
US S&5 500
Symbol - USA 100Cash
1 Point - 0.1
Pip Size - $ 0.1
Margin per One Lot - $30
USA NASDAQ 100
Symbol - US 30Cash
1 Point - 0.5
Pip Value - $ 0.5
Margin per One Lot - $150 dollars
US DowJones30
Symbol - US 500Cash
1 Point - 0.1
Pip Value - $ 0.1
Margin per One Lot - $12 dollars

As evident from the preceding table, the necessary margin per contract or lot fluctuates between approximately €5 and €250.

The amount of money you get per pip changes from $0.1 to €1 for each lot. In Forex, the money you get for 1 pip with 1 lot is $10, but for stock markets, the money for a pip is much less. But, stock markets usually move a lot more pips than regular Forex pairs. So, even if each pip is worth less, stock markets move about 500 to 2000 points each day.

2. Better trends because movements are based on market moves

Index shifts often feel easier to guess than currency moves. History shows one sure thing. Stock values climb over time. Since indexes follow stocks, their long paths head up too. Sure, recessions pull them down. Most times, we trade during growth worldwide. Indexes rise then. Folks have cash to put in stocks. That lifts trends higher.

Given that trends are predominantly upward, as an indices trader, it is advisable to lean more towards buying rather than selling, since, generally, individuals continue to purchase stocks. This does not imply that retracements cannot occur: rather, it indicates that the likelihood of profiting from a buy position is greater than from a sell position, particularly if you maintain your trades for an extended period. Even for scalpers, it is preferable to wait and capitalize on upward market movements, as they tend to be more lucrative and align with the prevailing trend. Keep in mind that pullbacks are merely short-term market fluctuations. These pullbacks arise when investors take profits by selling some of their stocks, resulting in these brief retracements.

One more reason stock values tend to increase is that the stocks being followed are from reliable companies, which are the most profitable businesses selected from the most profitable industries and parts of the economy. This means that these are the most profitable stocks in any stock market and usually the best ones, so their prices will likely keep increasing because these businesses continue to make a profit. As a result, even the indexes tracking these top stocks will generally keep going up.

Another thing also is that companies shown & displayed on an index are constantly getting reviewed, if a company stops meeting the growth & profitability requirements it is removed from the and another profitable company replaces it, therefore meaning these indices will keep moving upward as at any one particular time they represent the best companies.

Best strategy for trading these indices is to wait until there is a pullback, then buy in to that dip wait out for market to move up a couple of days, takeprofit, wait for another price pull back, buy & keep repeating this trading strategy. If you find price somewhere at the top after an extended move upward always wait for a pull back before buying, there is always one or two good pullbacks every week where one can buy into an index and ride the market trend for some profit. Please remember this strategy - it'll be the difference determining if you make money or not when it comes to these trading instruments.

Moves are less volatile & more robust

This idea is rooted in the fact that indices derive their value from stocks selected from top-performing companies across leading industries and sectors in key economies like the US, Japan, UK, and EU.

The above Indices therefore represent the best companies, from the best economic sectors of their economy, chosen and selected from the top leading economies in the world. Therefore their movements are more robust and less volatile - mostly upwards trends.

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