While stock traders tend to focus on specific companies and hold their stocks for a long period of time, more and more traders are choosing indices as their underlying assets. This is because the indices are less volatile and less sensitive to external influences than certain stocks. Thus, investors get the opportunity to benefit from the direction of the indices through leverage while not being exposed to a specific risk of a particular company.
In financial theory, analysts highlight market risk and asset risk. Market risk represents global market risk. When US GDP growth does not live up to expectations, the market is likely to trade at lower levels, this may be associated with global market risk. An asset risk is a risk that is strictly specific to a specified asset. For specific stocks, the news outlet represents an asset risk in which the final result will practically only affect the price of a specific stock in the company.
What are indices and how to Trade them?
As you know, a securities index is a portfolio of several companies that is used as a guideline for the financial condition of a geographic area, a specific market or part of it. For example, the FTSE100 is the average number of stock prices from the 100 largest and most actively traded companies on the London Stock Exchange. This index is thus used as an estimate for the financial health of the UK stock market. If you read in the press that the FTSE 100 index has grown, it means that there is more demand for the purchase than the sale of shares on the London Stock Exchange. It also means that most UK stock prices will rise. Conversely, if most people sell stocks the index goes down.
Being the arithmetic average of several stock prices, the indices were not tradable for many years and were simply used to have a quick look at the performance of the market. Investors can now trade indices through ETFs, CFDs and options. They are definitely popular among retail traders who want to have a common impact on the stock market, without having to study the specifics of any company.
The Advantage of indices for Traders
Why are stock indices so popular among retail investors? indices allow the trader to diversify their risks. The index tracks the overall performance of the selected market and each news on the topic of the company is offset by the activities of other companies included in the index. Thus, the spread of trading risk to the entire market can be useful, since the largest stock markets often have a general trend that can be traded as a reflection of the overall market sentiment. Indices are also extremely sensitive to patterns technical analysis. Since each trader has the ability to view them, indices tend to be an ideal candidate for building trading strategies based on technical analysis patterns.
Top Trading indices
While there are several indices to choose from, there are some that tend to be more important than others. You definitely want to trade the most popular in order to capitalize on market liquidity and volatility. According to official data from several brokers, as well as our own experience in the financial markets, we believe that these are the best candidates for trading.
DOW Jones Industrial Average (DJIA): Chart and Financial Data
DJIA is an index that tracks the dynamics of the US industrial market. While it is already pretty much the most popular Wall Street index, the S & P500 is gradually replacing it as the most followed index.
Standard & Poor's Index 500 (S&P 500): Chart and Financial Data
S&P is an American stock market index that contains stocks from the 500 largest companies located in the United States. The index takes into account the industry of the company in order to represent each section of the US economy.
NASDAQ Index 100: Chart and Financial Data
NASDAQ is an index that includes the 100 largest domestic and international intangible securities listed on the Nasdaq Stock Exchange. It is used as the authority to execute the US technology sector.
Deutscher Aktien Index (DAX 30): Chart and Financial Data
DAX is a stock market index that includes the 30 largest and most liquid German companies traded on the Frankfurt Stock Exchange. Historically, Germany is considered the economic center of Europe, from which it follows that it is the DAX 30 that reflects the actual state of the economy in the Eurozone. Adidas, Bayer, BMW, Deutsche Bank, Siemens and Volkswagen Group are all part of the DAX index.
Financial Times Stock Exchange Index (FTSE 100): Chart and Financial Data
FTSE is a stock market index that includes the 100 largest UK companies traded on the London Stock Exchange. It is calculated by the independent company FTSE Group, which is jointly owned by the Financial Times and the London Stock Exchange. It is considered one of the most influential stock indicators in Europe.
NIKKEI Index 225 (NI225): Chart and Financial Data
NIKKEI is one of Japan's most important stock indices. The index is calculated as the simple arithmetic average of the stock prices of 225 of the most actively traded companies in the first section of the Tokyo Stock Exchange.
Where Can I Trade On These Charts?
Professional traders are confident that with the help of investments you can easily increase your income. Today, you can sell or buy stocks without leaving your home. All this is due to the fact that trading on the stock exchange is now possible via the Internet. You can trade not only stocks, but also currencies, cryptocurrencies, indices, futures, bonds.
On the recommended brokers page you can find the best terms. We recommend only brokers who offer first-class services, fair and reasonable conditions with the most favorable and relevant offers. All you have to do is click on the broker's website, and you are ready to go to the exciting world of trading.