Indices or Indexes are groupings of a specified number of stocks into one trade-able entity, either representing a particular market or portion of it. Although each stock can be bought and sold on its own, and index can also be traded as a whole.Indices are bought and sold in same way as an individual share.
Indices are mostly region based and investors also use them to gauge a particular economy’s health. Trading on Indices also allows investors to diversify their risk across the whole market instead of investing in a specific company. Major Indices are S&P 500, Dow Jones in USA, FTSE100 in UK, European indices such as DAX30 and Asian Indices such as NIkkei225, Shanghai Composite.
Most of Indices are calculated using a market value/capitalisation-weighted average, which means the size of each company, is taken into account. The more a particular company is worth, the more its share price will affect the index as a whole. Example:FTSE100
However,Price-weighted indices base the weighting that a company has in the index on the company’s share price.Example: Dow Jones and Nikkei
Indices trading is available through Daily Pips Markets trading platforms, providing its clients with the lowest commissions and margin requirements so as to maximize your profits.
Start trading on indices online today by simply opening up an account with us, or contact us for further information.
Indices Trading Example
Opening the Position
Opening price USD $ 2082.60
You decide to buy 1 contract at $ 2082.60 (1 contract=1$ per index point)
Closing the Position
One week later the SPX500 has risen to $2092.60, you decide to take your profit by closing your buying position
Market movement= 2092.60 – 2082.60 = 10
Gross profit on Trade = 2092.60*1-2082.60*1= USD$ 10 ($1 per Index point)