What are indexes?
Indices are a set of instruments, such as stocks, that allow market participants to monitor the growth and dynamics of a particular sector or the economy as a whole. They can be traded or used as an indicator of market fluctuations and profitable trade opportunities.
As an example, the S&P 500 (USA), FTSE 100 (UK) or DAX 30 (Germany) are calculated based on the market capitalization of the largest companies in these countries. If one of the indexes grows, then this means an increase in capitalization and a favorable investment situation.
Why is index trading profitable?
Indices are highly liquid and you are more likely to profit from price fluctuations given tight spreads.
Secondly, the index reflects the general level of the economy of a certain country, which allows for increased volatility and greater trading opportunities
Fundamental analysis helps determine the direction of the index. Fresh news will tell you if the index is expected to rise or fall, which is understandable and accessible even for beginners.
A wide variety of indices allows traders to choose from a variety of sectors and industries, from general to narrow. For example, for those who are fond of technology, there are such indices as the US Tech 100.
Indices trading, where to start?The most convenient and reliable instrument for index trading is CFD. Typically, such derivatives are traded in the respective currency of the stock exchanges. For example, the United States is valued in dollars, and Germany is valued in euros.
CFD trading is possible outside the opening hours of the exchange, 24/5, and this makes it possible to earn more, just like in the Forex market.
Before trading indices, we recommend that you analyze the economic situation in the country whose index you will trade as best as possible:
Then select an index for trading. Carefully study the trading instrument and never try to guess the price movement vector.
— components of the index (participating companies),
— economic data,
— political changes in the country.
Your main task is to closely follow the financial and political news of companies and the economic calendar.
Rely on the forecasts of financiers and also try to be one step ahead of the current situation.
In general, index trading works like regular Forex trading and involves a similar calculation of the risk/reward ratio. The only thing is that it is necessary to conduct deep fundamental analyzes before trading.