Index trading is a technique that refers to certain methods of determining the true value of stocks. The value varies from country to country, and they have a different index for each stock. Trading indices or indexes are very popular among day traders and long-term traders, often because they have high cash flow and offer attractive trading opportunities. In the financial world, for example, codes are created to track things: publicly traded stocks, bonds, and consumer prices of common goods and services. By 2021, there were more than 3 million different indices designed to follow virtually any particular niche of the market.

In this article we will investigate the best benefits and advantages of trading indices.

What moves indices markets

But that’s not exactly true … the reality is that major indices are filled with international companies, which are driven by the global economy as a whole.

• Assets vs Relationships

You can only benefit from the top of the stock market, while allowing forex versatility. But spread-betting has allowed ordinary traders to make money whether the markets are going up or down. Whether you ‘buy’ or ‘sell’ a index, its value is derived from the underlying assets – the companies that make that indices are valuable. Forex markets, by contrast, are about the relationship between two things. The value of one thing moves against another. We always trade them in pairs, buy one currency and sell another.

• Better trends than currencies

The stock indices market moves are based on stock market price moves. Stock market price moves tend to move in one particular direction. In times of economic growth the prices of stocks increase constantly meaning the stock indices that track the prices of these stocks will also continue moving upward and maintain an upward trend. While in Forex currency market moves may not be well pronounced as the market moves in stock indices. 

• Indices have less consolidations and market whipsaws

Unlike forex currencies, which can be consolidated over a long period of time, thus creating multiple whipsaw, stock market indices are rarely consolidated for long periods of time, and stock indices can show a specific trend direction at any given time – up or down. This means that less whipsaw will be generated when trading stock indices, and every trader will know that less whipsaw are equal to the best odds in making a profit.

• Index moment better than currencies

Stock indices will move an average of 500 to 2,000 points per day; compare this to FX currencies that only move 50 to 100 points per day. Another advantage of this is that 1 point in stock indices move is equal to $0.1 and not $10 dollars like in FX trading. This means that when trading stock indices the average profit per 1 pip move is less, therefore a trader can implement better money management in stock indices as the minimum price move per 1 pip is not that big. At the same time because the average move in stock indices is an average of 500 to 2000 point traders will still make a good profit even if 1 pip move is equal to $0.1.

• Margin can be low

The margin requirement per 1 lot for stock indices varies from $5 dollars per lot to about $250 dollars depending on the stock indices being traded. In FX the margin required per lot is $1,000 dollars per 1 lot. Therefore a trader needs lower capital to trade indices as compared to FX Trading.

• Index trading is ethical

This may come as a surprise, but trading indices is ethical. You can explain it to your friends who judge traders without having the minimum knowledge of economics. By buying or selling indices, you have absolutely no impact on the share price, and thereby on the lives of employees. You have no impact on countries’ debt; you have no impact on raw materials, etc. You buy and sell an index. Directly investing in an index does not change stock prices. You have an absolutely neutral ecological footprint.

On the other hand, if your friends have life insurance, they have an impact on the economic life and the lives of “people”. For example, they speculate on the debt of countries. Generally, they will not appreciate you explaining this to them, but you have to get them out of their economic obscurantism.

Conclusion

Index trading is a secure form of trading with integrated money management. The risks of index trading are lower than on other products. By selling or buying stock indexes, you have absolutely no impact on the stock price, and therefore on the lives of employees. You have to be sure about your choices and analyzing skills. The more you learn the more you make a profit. 

Broaden your trading opportunities with Winstone Prime index trading.