Indices

Indices

Indices are indicators that show the overall performance of the industry, segment, or even entire market that they represent. NASDAQ, for example, is an index that can show us a general overview of the high-tech stock market. The FTSE100 index is an index of the 100 largest companies on the London Stock Exchange. When trading indices, a trader is speculating on the general performance of the market or segment the underlying index represents, rather than the performance of a single company or group, as is the case with trading stocks. Analysis can therefore be performed on the index itself, without the need of individually analyzing the underlying companies.

Why trade indices?

Since an index represents the multiple companies that comprise its market or segment, it has lower volatility. While a new product or a bad quarter can heavily influence the prices of stocks, the index won’t be as heavily affected unless a majority its underlying companies show significant growth or decline. It’s easier to diversify your trading portfolio through indices than traditional stock trading, as it requires less research and removes the possible inconveniences to owning stocks of multiple companies. Overall, trading indices is a great way to make money by focusing only on certain markets or segments of a market that a trader may find interesting or possess more knowledge about.