Trading indices for beginners

By definition, an index is a calculated average of a given share prices, which represents a particular market or sector. To better understand indices, just think of it as a ‘’group’’ of shares that provides a broad view of an industry and its value on the markets.

For example, the FTSE 100 represents the largest 100 companies traded on the London Stock Exchange. If, on average, the share price of these companies goes up - then the FTSE 100 will rise with them.

As indices are not actual products, they cannot be traded directly. Instead, investors trade indices through derivatives such as CFDs, futures or options. In fact, stock indices are the most popular form of CFD trading.

Boost and diversify your portfolio

S&P 500, FTSE 100, DAX 30, CAC 40 are only a few of the most traded indices on the global markets, which are also available for all A3 Trading clients. By trading indices, a trader is able to diversify his or her portfolio and thus take advantage of more profit opportunities.

Indices are considered an integral part of a trader’s successful portfolio and one of the reasons is because they add flexibility to the trader’s portfolio. Stock indices are one of the few financial products, which can be traded under any market condition. Indices can be traded online as easily as currencies or commodities.

Maintaining your portfolio during stock market corrections

Every market goes through periods when it is more vulnerable to changes. In situations like these, experienced traders react by hedging their stock market portfolio by buying and selling stock index futures.

This is one of the reasons for most experienced investors to keep indices in their investment portfolio.

Sell as easily as you can buy

One of the major advantages of futures markets, in general, is that you can sell contracts as easily as you can buy them and the amount of margin required is the same.

With indices, buying and selling is even easier. For example, when speculating with indices traders don’t have to wait until the market moves up. They can simply sell short and make money on declining markets. There are no special restrictions at all on being short.

Start Trading Indices