Global Courant 2023-04-12 19:15:59
According to financial services firm easyMarkets, stock indices are an ideal measure of understanding the overall performance of the market, as they tell us something about the general state of a country’s economy or a particular sector.
They have the ability to show us the movement of most companies in the said market at a glance.
The current differences in the value of the stocks that make up the indices reflect the economic situation facing the financial world, and investors take advantage of the price changes of the various stock indices to gain returns.
For knowing how to trade cash indices is it necessary to know what the indices are, which consist of the most liquid companies in a specific sector in a given country and are formed from a series of stock values quoted at that time, that is, they represent the development of companies in a specific country and in a specific sector.
Trading success rates are considered high because indices provide the opportunity to trade the financial markets with less risk than trading individual stocks.
That is why many investors prefer to invest in indices rather than individual stocks.
Stock indices serve as a reference to know the general behavior of a certain type of asset, and they are also used as a standard or basis of comparison to determine the relative profitability of fund managers and individual investors, for example: a return of 15 percent for one year, then in principle more than the number Acceptable, but if in the same year the stock market index in which he invests rises by 30 percent, his relative performance would be quite mediocre.
easyMarkets proposes different types of stock indices
There are different classifications of stock indices, but the three most common classifications are as follows:
1- According to the geographical origin of its assets:
National indexes consist of origin in the same country.
International indices consist of assets in one or more foreign countries.
Global Indexes consists of assets from all over the world.
2- According to the type of companies containing:
Sector indices It is composed of companies in a specific sector.
Cross-sector indices are composed of all types of companies.
3- According to the type of assets it contains:
Shares variable income indicators.
Fixed income indicators consisting of bonds and liabilities of all kinds.
Commodity indices such as oil, gold, silver and others.
Why invest in stock indices?
You must have wondered why you should invest in stock indices when there are other more popular and exciting alternatives such as stocks, cryptocurrencies or forex. We’ll give you five reasons to do so:
1- Diversified investment
The index is a conglomeration of stocks whose movement depends on collective performance, and this means that once you invest in an index, you are really investing in the economic behavior of many companies and the actions that result from them. As an investor, you have the opportunity to know the companies included in the different stock indices so that your choice is completely transparent, you can choose an international stock index, a national index or according to your sector of interest.
For example: the Nasdaq index is one of the most popular indices of the year as it lists the top 100 most valuable technology companies in the United States.
If you are a low-cap investor and you want to have an impact on the market, you can do so in a stock index instead of buying just one Tesla share, for example.
2- Less risk
The major stock indices significantly reduce risk because they act as a measure of the performance of the best stocks. Let us explain this with an example an investor likes to buy the cash stocks of UK banks like Barclays or HSBC, in the event of a downturn in the banking industry, the investor will witness the loss of a large portion of its investment. But what would have happened if that person had invested their money in the FTSE 100 (London Stock Exchange)?
The collapse of the banking sector would not have affected the overall performance of the index much, thanks to the fact that other companies with higher returns would have held onto it.
In general, indices are good at mitigating risk and while the gains are not instantaneous, trading stock indices is always safer.
3- It requires little capital
You can start your path as an equity investor with low capital indices because you can start your investment journey with index funds or exchange-traded funds (ETFs).
In theory, however, you can enter with little money and get extra money step by step, but keep in mind that in addition to allowing you to start investing with little money, many online brokers require a minimum investment, so we recommend you meet your pre-investment financial goals.
4- Low commissions
The idea of investing in stock indices is based on the long term, ie the implementation of an ongoing strategy, which means you don’t have to buy, sell and resell to make a profit.
By having zero sell moves and just increasing your position within the stock index, commissions will be low so you save money. Likewise, it is easy to track the fees charged for the indices because there are few financial products that have a huge impact on diversification, i.e. you invest in a lot but you work in a few.
5- Long term sustainable growth
The real value of indices lies in the long-term investment, and because of their low risk and continued growth, this is why most investors consider investing in indices their retirement plan.
How to invest in stock indices?
Investing in ETFs is easy because they trade in the same way as stocks. The first thing to do is to research the index you want to invest in, either because you like the index of that sector, country or market, or because you do some technical analysis and you see it’s doable to get in.
Then you need to find it in your broker, we have to do this step first because depending on the broker you might be surprised if after a thorough study and calculation of the risk and your site you find out that your broker is not negotiating it and you don’t access to this product, if you are with a good broker you will have no problem and you can move on.
Now select your starting point, stop loss and target if it is a short or medium term operation and calculate your position size based on your risk and capital.
There are many ways to invest in stock indices, some more difficult than others, but all have high profit potential, but most investors who want to take advantage of high leverage resort to financial derivatives such as binary options, forwards, or contracts for difference (CFDs). CFDs).
However, there are safer alternatives, such as exchange-traded funds (ETFs) or index funds, where you no longer have to be tied to a specific date (as with futures contracts).
If you are a novice investor, keep in mind that every operation has its risks. Fortunately, reliable brokers have demo accounts so they can learn and work with virtual money.
