What Is A Stock Index?

Stock Index trading is when you trade a basket of stocks which make up an index , but you go through one of the instruments like Nasdaq, Ftsee100, S&P500, Dow Jones, Dax and many others to trade it. Stock Index trading is different from Stock Trading. In Stock Trading you are trading stocks of specific companies, and each company has its own price. Once you’ve purchased stock, you then own the stock and it has to be transferred to you by the seller. Stock trading also requires you to do lots of research about companies where you want to buy their stocks.

How to trade Stock Indices?

Trading in the Forex markets is not only about currencies. There are various financial instruments that can be traded (you may require a bigger capital to do so). Maybe up to now you thought trading stocks is not for you, you are a Forex trader. The opportunity for Stock Index trading is presented right in front of you, you see it every day when you log in to your trading platform. If you are like me and you have taken trading financial markets as an investment, you might want to diversify your portfolio by introducing Stock Index trading to your daily activities, instead of focusing on currencies only. Let me start by identifying some of the few stock indices that you can check out.

Dow jones/USA30Industrial
Ftse100/UK100Comprises of 100 companies on London Stock Exchange (Vodafone is one of the companies listed)
S&P500Comprises of highly market public held companies. Amazon is one of them.
Dax/Ger30Represents 30 largest and most liquid German companies that trade on the Frankfurt Exchange

Advantages of trading a Stock Index

  • Stock indices have generally higher returns than the stock market they represent.
  • The volatility is reduced when compared to currencies.
  • Stock index trading requires less research as opposed to trading /investing in individual stocks.
  • When trading a stock index e.g. FTSE 100, you do not have to spend weeks analyzing all 100 companies under this umbrella but all you can do is just follow FTSE 100 index as you would do analyzing your currencies.
  • Stock index trading does not require any traditional stock brokerage where you pay high fees, you can buy and sell on the same Mt4 trading platform as you would do with your currencies and it is a much cheaper way.

How to trade FTSE 100

You will have to know what is happening in the markets as far as the economic calendar is concerned in order to succeed in this. A few points to consider when trading FTSE 100 is the release of Interest Rates announcements, UK manufacturing numbers, GDP (gross domestic products) figures, housing figures and Inflation data.

All the above are key to trading FTSE 100 successfully. This index tends to imitate the European markets as it trades during the same time frame as European markets. As I always say “we are eating this elephant one piece at a time.”

Check out my latest episode on my podcast titled “Don’t invest in the markets blindly”. To read these blog posts on the go, you can download my App on Google Play Store. Thank you for stopping by.

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