In the trading industry there are multiple assets available to trade from and investors, traders and business analysts, all have their own reasons and preferences in deciding which instruments they will trade. They take into account the pros and cons of each asset, the availability with their trusted brokers and their own investing capital. Every asset whether they are forex pairs, cryptocurrencies, shares, stocks, CFDs or indices, have their own different advantages and disadvantages. With that in mind we can take a look at what stock index trading?
A group of selective shares that are used to give an idea of an economy, sector or exchange on a whole. They are made up of the most influential and top companies belonging to that industry to provide an image of how well or not that industry is doing in the stock market. This made the work for investors easier to understand and analyze the market conditions. Some of the most popular stock indices include:
- The top 200 companies listed on the ASX by market cap are called The ASX 200.
- The 100 biggest companies on the London Stock Exchange by market cap called The FTSE 100.
- The top 30 companies on the New York Stock Exchange and NASDAQ called The Dow Jones Industrial Average.
- 30 major German companies on the Frankfurt Stock Exchange called The DAX.
A stock index does not have any inherent value, it moves in points and reflects the stock prices of all its underlying assets on an average. If a trader wants to trade a stock index they need to follow some trading methods through which they can get access to them, that is they either have to use a tracking fund or a derivative like CFD, future or ETF. They all allow the investors to trade on the price movements of stock indices all at once without having to buy multiple stocks which can be difficult to manage.
There are some factors which affect the prices of stock indices such as global news, economic news, company news and when a company’s stock is added or removed from that stock index. Moreover, very little capital is required to trade with stock indices which attracts many investors towards this specific financial instrument.