Index trading is an alternative approach to invest in the financial market. The index’s price consists from the price of several tradable instruments, in which some may have a higher impact on the absolute price. In other words when you are trading an index, you are investing in a group of instruments, instead of the price of a particular commodity or share.
Index trading provides investors the ability to trade in a specific sector of the economy, while at the same time hedging against risk. Due to the fact that indices are composed of diverse instruments, trades can use information to their advantage, in addition of receiving updates in reference to the specific sector related to the index.”
The variables that affect the index prices include:
- Earnings reports and announcements
- Politics & geopolitics
- Changes in taxation
- Interest rate decisions
- Consumer preferences
- Natural disasters
- Technological advancements
Short Trading vs. Long Trading
Considering that the Financial Market is always fluctuating, it doesn’t matter if you contemplate that the price of a specific index is going to decrease or increase. When you trade indices, you can benefit from every variation in price, up or down. You may select to ‘Buy’ (Long) if you anticipate the index in question will gain value or ‘Sell’ (Short) if you consider the index will reduce value.
Trading Indices with Leverage
Leverage is one of the most common tools used by traders, it allows you to boost your buying power. In Trading360 we can teach you how to benefit from the use of leverage and manage risks while trading indices.
With a $500 investment, you can open a position valued at $50,000 using a ratio leverage of 100:1.
Leverage permits you to open a position with a larger volume at a rather minor investment. It increases the risk of an investment so it should be used with high level of understanding.