Indices measure the performance of a company or group of stocks. And indices trading can be a good way for inexperienced traders to enter the stock market more safely.
Market indices are measurements of the price performance of a group of shares from an exchange. It’s a popular way to get exposure and get noticed on the financial market without actually having to invest in different individual company bonds, stocks, or assets.
Newcomers to financial markets often use indices trading, trading an index tracking fund or a basket of shares instead of individual company assets. Stock indices are common knowledge for inventors, and you will hear them mentioned in media and finance.
The Most Traded Indices and How They Work
Indices trading can be used to make the markets safer for new investors and ordinary people who maybe have a limited understanding of how the stock markets function. One of the most famous trading indices was created in 1896 by Charle Dow, called Dow Jones Industrial Average (DJIA).
A Brief Overview of Trading the Stock Market
The stock market index was made to track 30 large companies trading on the New York Stock Exchange. Today, the index is a widely watched benchmark in the States for blue-chip stocks.
Many stock market indices are calculated according to a market’s capitalisation in relation to its component companies. But the Dow Jones Industrial Average is price-weighted. Other most traded indices include DAX, FTSE 100, NASDAQ 100, and many others.
How to Determine What Affects An Indices Price
There are several factors that can move an index’s price. For example, economic news can influence the price very much and quickly. These include things like central bank announcements, payroll reports, and other economic events or investor sentiment.
The company’s financial results in terms of profit and loss can also move the indices and cause the share price to either increase or drop. Weighted indices can experience a price shift if companies are removed or added.
Go Long or Short
With indices trading, you can go long or short. If you choose to go long, it means you’re buying a market because you expect the price to increase and go high. If you, on the other hand, go short, you’re selling a market because you expect the market prices to drop and go low. In short, this means that you could take a profitable position if an index’s price decreases in value.
