Indices

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CFD Indices

What are Indices?

 

The simplest definition of what indices are is the following:  

 

Indices measure the performance of a group of assets, in this case we measure the performance of stocks that belong to companies who are being publicly traded. 

 

Or indices simply measure the country's economy or an industry sector.

 

Here is a short list that contains the worldwide famous indices: 

 
  • One of the very well-known indices in the US and the whole world, is Dow Jones.

The Dow Jones Industrial Average (DJIA) is following the overall performance of the 30 biggest companies in the US. In case the average price of the 30 companies goes up, the DJIA becomes higher as well. If the average price of the 30 companies drops lower, the DJIA will decline too.

 
  • The second famous index is S&P 500, Standard and Poor’s 500 which stands for a stock market index that tracks 500 publicly traded domestic companies - considered as the best measurement for the stock market in the US by many investors.
 
  • And the third one on this list is The Nasdaq 100 Index.

The Nasdaq 100 Index. stands for is a group of the 100 largest, most commonly traded U.S companies. The index contains companies from different parts of almost any industry, but the financial industry is excluded such as some commercial and investment banks. Industries that don’t belong to the financial sector and are included in the The Nasdaq 100 Index are: retail, health care, transportation, media and service, telecommunication and biotechnology.

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There are other indices such as hundreds of global, country and region-specific indexes including MSCI World, Japan's Nikkei 225 ect. 

All of them are based on different stocks and vary in the number of companies as well as how they are weighted inside an index.

 

What is CFD index trading?

 

Selling as well as buying a specific stock market index is considered an index trading. 

 

Investors usually will speculate on the price of an CFD index increasing or declining which then determines whether they will be buying or selling the index. Since an index represents the performance of a group of stocks, you will not be buying any actual underlying stock, but rather speculate on the price of the stock’s index.  When the price of shares for the companies that are a part of an index go up, the worth of the index increases. If the price of the index falls, the worth of the index will drop.

 

How to trade CFD Indices? 

 

Limit Prime Securities offers you trading with CFD indices. That means when you take a position on an index, you are effectively investing in the performance of these company shares and thus avoid factors that influence the performance of individual companies.

 

All you have to do is:

   

Thanks to the leverage, you can multiply the value of a trade through the usage of borrowed capital, and as such, you can increase the potential profit or loss to be realized from the trade. The available leverage for index CFDs with Limit Prime Securities is up to 1:100.

 

We have prepared this video example to help you understand the concept better:

 

 

What moves index market prices?

 

The motion of index prices is mainly dependent on forces that affect from outside the market. The price will generally decrease in times of uncertainty and events that weakness the country's economy. Some factors that can impact the price of an index include:

 
  • News about the companies involved - Main news that affects the company, such as the new CEO, the release of financial quarter reports.
  • Global news - Unpredictable news about natural disasters or pandemics often tend to negatively impact an index market by influencing the affected country’s economy.
  • Economy - Economic events and meetings such as central bank rate choices, NFPs, trade agreements and employment indicators.
  • Index reorganization - When a company's stock is added or removed from a stock index, the prices can see a shift.(E.g. Tesla)
  • Commodities - Stocks that are within an index could be commodity stocks, with any variations in the market there is a potential to affect the index price.

Why should you trade CFD Indices? 

 

According to analysts, beginners, as well as experienced traders came to a conclusion together and determined that trading indices have their own advantages and reasons why to trade. Those reasons include:

 
  • Go long or short - The ability to go 'long' or 'short' means that you can take advantage of stock indices prices falling or rising.
  • One trading account - You need just one trading account to access multiple indices from all over the world.
  • Index reorganization - Indices can change, removing a company's stock that has been performing badly or including a new stock that has seen significant growth.
  • Much less capital is needed - Very little capital is required to start index trading Index CFDs.
 

In these indices, where many shares are combined, you can benefit from diversification,  which is the primary theory of financial investment. You can potentially earn from the movements of the indices by simply buying the indices of a country that you think will perform well in the following days, and selling in cases where you think the opposite will happen.


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