HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%
XM information and reviews
XM
82%

Stock Indices: What Are They And How To Trade Them


When describing the markets, we might hear of popular phrases like “the market has surged higher” or “stocks tumbled to new lows” when reading and listening to news reports. But what does “the market” and “stocks” mean and specifically what market do news media generally refer to? Most people talk about stock indices when they discuss “the market” and arguably a stock index is also the most popular instrument to trade.

The Dow Jones, Nasdaq and Dax have become part of our everyday language even if little else is known about these markets. With the growing importance of stock markets in western society, let’s dive into the world of stocks indices. 

What is a Stock Index?  

A stock index is an index that tracks the price performance of an underlying group of company shares on a given stock exchange. Trading indices allows you to get exposure to that group, or sector or country’s top companies in one trade in a single position.  

Some well-known and most traded examples of major market stock indices include: 

How do Stock Indices differ from other indices? 

Stock indices are trackers of numerous well-known and sometimes less common companies which move in points. They will reflect the prices of all the underlying assets and may be equally weighted or biased towards larger stocks. Price-weighted indices like the Dow Jones Industrial Average give greater importance to higher priced shares. Those indices weighted by market capitalisation will move more by larger cap companies.  

Other well-known indices include the Dollar Index (DXY), which measures the value of the dollar against a basket of six other currencies used by the major trade partners of the US. The euro dominates the basket with a weighting of around 57.6%.  

The VIX is a real-time index representing market expectations for volatility in the S&P 500. Known as the Wall Street “fear gauge”, it is derived from the price of index options over the next 30 days. Volatility is often seen as a way to gauge market sentiment.  

Why trade a Stock Index?  

Stock indices are highly liquid and follow stock market exchange trading hours. As the index is a basket of numerous companies or industries, you are exposed to market movements of the entire market in a single position. You do not need to open multiple trades and could benefit from moves in the most important stocks in the sector or country traded on the exchange.  

You can also trade the ups and downs of stock indices via a derivative product like Contracts for Differences (CFDs). CFDs enable you to gain exposure to the market by speculating on the price movements of an underlying asset, such as a stock index in this case, without actually owning the asset.  

Here are some advantages of trading stock indices CFDs: 

How to trade a stock index using CFDs? 

Derivatives like CFDs, short for “contract for difference”, are margined products that track an underlying asset. This means you are only required to put up a fraction of the full contract as margin to open a position on the underlying asset. It is always wise to have a risk management plan in place before you open live positions. This should include using stop loss orders and take profit limit orders. You will then know how much risk you have in the market at any point in time.  

Try and pick a stock index that suits your individual appetite for risk and trading style. Some indices like the broad-based S&P 500 can historically offer steadier returns, while others are more volatile like the Dax 30. You can now choose if you want to go long or short against the stock index. For example, if you think the tech sector of the US economy looks attractive, you might go “long” on theNASDAQ-100 Technology Sector Index (NDXT).  

However, it’s important to learn that CFDs are high-risk financial instrument due to leverage. You are encouraged to do your own research and understand all the risks involved. To start trading indices CFDs, you can open a live account with Vantage to access global markets. Alternatively, you can opt for a demo account instead, to practice your trading with virtual money. Beyond trading stock indices with CFDs, you can also trade other products classes such as forex, commodities, gold, ETFs and more with Vantage. 

#source


RELATED

How to trade stocks and CFDs on stocks

We continue our series of articles on choosing a trading instrument. This time you will learn what CFDs on stocks are, how to trade them and how...

Important Factors in Trading Forex

Whether you are already investing in the Forex markets with Olymp Trade or you're looking to start, there are many things to consider and understand in order to find more...

Curbing your losses with Stop Loss and Take Profit

Trading on a stock exchange is always connected with great risks. That's where Stop Loss and Take Profit come into play: these are helpful tools used by traders to minimize...

The Economic Calendar Is a Useful Tool for a Trader

The quotes of currency pairs, as well as cryptocurrencies, stocks, gold, and other assets, are influenced by many different events taking place in the world. These are parliamentary...

Basic Concepts Of The Stock Market And Their Applications

A stock market is a trading floor where stocks listed by companies are traded through direct exchanges between multiple parties (OTC). This kind of interaction...

Three key aspects of a trustworthy broker

In recent years, trading on financial markets, especially Forex, has proven to be a viable and popular source of consistent gains with potential immediate returns. With that in mind, many aspiring traders embark on their journey in search of financial freedom — and inevitably face the challenge of choosing a broker they can rely on.

Crypto and NFTs: The New Age of Art

Crypto and NFT art can be an even more promising pair for the future of art as a whole. Fiat currencies and art have both been around for a long time. We are equally...

Is CFD trading a better option in 2022/23?

It wasn’t so long ago that only the elite and wealthy had access to the global markets. Back then, a traditional trading account would require a deposit of at least...

Scalping: When Seconds Count

Today we will be talking about scalping as a trading approach. Scalping is characterized by very short-term trades with minor price changes and a profit of several ticks...

What is Spread, and Are You Better Without It?

Spread is a central element in Forex trading. Traders are keen to know and ask a lot of questions about it. While spread exists in various sectors of the financial market...

Why Choosing The Right Broker Is Critical

Forex trading is an equal opportunity vertical. There are no exams, no prerequisites, no prior experience needed to start trading. All you have to possess...

Stocks: Top-5 of what you'll want to trade

If you look at the currency charts, they may seem chaotic most of the time. On any timeframe, be it long-term, mid-term, or short-term. The basic reason for that...

Invaluable Tips on How to Choose the Best Forex Broker for Beginners in 2022

Why do people want to start trading foreign currencies on the global market that is commonly known as Forex? Some are tired of their mundane jobs where they get paid peanuts...

The gamification of trading and the case for financial literacy

Trading apps are attracting younger audiences with new investment approaches and appetites, sparking knee-jerk reactions from regulators and media...

Financial Instruments Explained: Types And Asset Classes

Every beginning investor, having defined his investment objectives and risk profile, thinks about how to structure his portfolio so that it meets his needs...

Understanding Micro Lots and the Importance of Lot Sizes in Forex Trading

Grasping the concept of lot sizes in forex trading is essential for every trader stepping into the market. This article will delve into the details of what a lot is, the various lot sizes available...

How to Trade Oil CFDs: A Comprehensive Guide

The oil and gas industry encompasses different types of oil, such as crude oil, no-lead gasoline, natural gas, and heating oils. Among these, crude oil remains...

Everything you should know about mutual funds

A brief introduction to mutual funds and why you should invest in them, the risks, who should invest, their performance and the alternatives. Every year...

How to Choose a Currency Pair for Forex Trading

This article is intended primarily for beginners, but it may also be interesting and useful for those who already have some experience in trading in financial markets...

Is Forex essentially gambling?

An issue for many new market entrants is the following: Is Forex essentially gambling? Each decision we make in our daily lives can be considered as a risk we take to succeed or progress in something...

FP Markets information and reviews
FP Markets
81%
RoboForex information and reviews
RoboForex
77%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.