How Do I Trade Indices?
Stock indices are usually treated as a measure of economic strength of a nation; specifically, in the business sector.
Stock indices are usually treated as a measure of economic strength of a nation; specifically, in the business sector. Since these indices include the top companies in that country, strengthening consumer and business activity is generally reflected in higher share price, while weaker economic performance tends to drag share prices down. These indices can also be seen as a proxy for that country’s currency.
Due to traders initially finding specific company stocks to be a little tricky, some start off by trading stock indices first; after all, index drivers and pertinent reports such as economic data and updates of political events are available to the general public, and are easily available through online access. For example, GDP reports, or unemployment data tend to influence index price action, especially if they come in below, or above expectations.
Traders closely observe the indices of the largest stock markets in the United States, Europe, Asia and other emerging markets, since these exhibit strong trends or reactions to top-tier data releases, or financial events. These compromise the Dow, S&P 500, Nasdaq, German DAX, French CAC 40, FTSE 100, Nikkei, China 50, and ASX, as well as many others – all of which are offered on the Forex Tigon LTD platform.
When calculations of profit and loss occur on trading such indices, one must have an idea of spreads and pip value. It is also crucial to take note of the minimum contract size and margin requirements before deciding on how much is needed to deposit in your trading account, and in calculating your position size per trade.
Trading indices may serve both short, and long-term trader-types. Economic releases and headlines tend to be the pair of choice for the short-term trader, since such results can spike prices for the trading session. On the other hand, these economic reports and overall market sentiment also guide longer-term traders in catching potential trends and reversals.
When trading US stock indices, it’s also beneficial to take note of earnings releases, which tend to drive the markets in a particular direction; earnings season typically arrives a month after the end of the quarter and can serve as guidance for future market trends; if earnings reports derive from well-known and influential companies, they generally appear to be stronger than initially expected, or show improvements from the precious periods, stock indices can embark on an up-trend. On the other hand, downbeat earning figures, or downgrades on the outlook, ma spark a down trend on stock indices.
Indices are traded through CFD’s (contracts for difference), whereby the difference between the prices when the contract was opened and closed, will be settled between the seller and the buyer – this means that overnight financing charges may apply, which can be positive or negative, depending on whether or not long or short positions are being held.
Such rates are normally based on a benchmark such as LIBOR, or the central banks’ prevailing interest rate, and like all margin-traded products, they carry a certain amount of risk which the trader should be fully aware of. Have a look at the instruments which are on offer by Forex Tigon LTD, as well as the spreads, pip values, contract sizes and margin requirements here.