Although indices are a buzzword in financial news and analysis, many traders are still unfamiliar with the exact meaning. We decided to share some facts that will clarify the true meaning of indices as trading instruments.
What are indices?
Indices measure the price performance of a group of exchange-traded shares. The FTSE 100, for example, tracks the top 100 companies on the London Stock Exchange.
How are they calculated?
The market capitalization of the constituent companies is used to calculate the majority of stock market indices. This method gives larger cap companies a higher weighting, which means their performance has a more significant impact on an index's value than smaller cap companies.
What are the most traded indices?
The three most traded indices in Grand Capital are S&P 500, Nasdaq 100 (NDX), and Dow Jones Futures.
📈 S&P500 includes 500 of the most capitalized companies in the USA
💯 Nasdaq 100 lists the hundred most traded companies on the Nasdaq exchange
⌛️ Finally, Dow Jones Futures is a derivative that allows traders to speculate on the future value of stocks.
When trading indices with CFDs, you can go long or short. Going long means opening a position with the expectation that the price will rise. Going short means selling because you believe the price will fall.
If you have a particular opinion on global market moves, trading indices may be a great idea. For example, your fundamental analysis shows that the recession in the USA is just around the corner. If you open a short position for S&P500 and this sentiment plays out, you will benefit from a negative economic trend! Isn’t it majestic?