Stock indices indicate the value of a particular selection of shares.
Stock indices indicate the value of a particular range of stocks, and with thousands of shares listed on the various stock-exchanges, stock indices provide an accurate and efficient way for investors and traders to always follow the market.
Further, traders can on an on-going bases easily compare their own equity investments with the relevant market indices to measure their own performance.
The main advantage of trading stock-indices rather than individual stocks is that they provide exposure to the entire stock market, or the specific sector that each of the indices represent.
Investors and traders trading indecies therefore do not need to carry out thorough analyses on single companies ahead of their investments.
They only need to have an opinion on whether they believe the entire market, or the specific sector is question is heading up or down.
The price movements of indices are usually much less volatile than those of individual stocks, making trading indices less risky with respect to sudden and / or unforeseen movements.
Regardless, due to all the trading activity continuously taking place in the individual shares, this provides more than enough movement in the various stock indices so that traders and investors will be able to identify ongoing trading and investment opportunities as these emerge.
This may be especially true for day-traders and others who typically act on relatively short-term, often news-based fluctuations as the different indices very much reflect the ongoing effects of political, psycological and economic sentiments.
For risk-averse and long-term investors and traders, investments and trading in stock indices provide a simple and very efficient diversification.
Instead of investing in just a few stocks, where the risk necessarily becomes much higher and far more unpredictable, stock indices and index based CFDs offer exposure to the entire market in question.
What is a Stock Index?
Stock indices are in practice financial benchmarks where the index value reflects the sum of all the underlying companies included in the different stock indices.
Perhaps the most well-known and traded index we know today is the S&P500 index. The index reflects the total value of the 500 most traded companies listed on US stock- exchanges.
If the total value of these companies’ shares rises, the price of the S&P 500 index increases accordingly.
There are also several other US stock indices representing smaller companies, and or sectors that can also be traded.
i.e. indices such as the Nasdaq (also known as the technology index) and the very well-known Dow Jones index.
The Dow Jones (DJIA) is the oldest existing index of all US equities, and out of the 12 initial stocks that originally made up the index, it is today not even one left (this after General Electric was taken out of the index in 2018).
Today, DJIA consists of the 30 largest companies in the United States, and the index is no longer only composed of industrial stocks.
Moreover, the index to compensate for market effects today is a weighted average of share prices, and no longer a direct average of these share prices.
Other well-known, large and tone-defying stock indices that can be mentioned are the Nikkei (Japan), DAX (Germany) and FTSE (England).
If you choose to trade indecies by taking advantage of copy trading and follow another trader, you will automatically get the same indices on your own trading account as the trader you are following has invested in.
If you have questions regarding trading indices and / or copy trading, please do not hesitate to contact us at; [email protected]