Indices trading is often thought to be a good way for beginners to explore the peculiarities of online trading. These are good assets to add to your diversified portfolio of investments if you want to mitigate the risks of online trading. With the help of cutting-edge instruments offered by the DotBig forex broker, you will easily trade indices and make profitable deals. Just find out how they are classified and how to trade them.
Everyone can profit from index trading because this type of trading doesn’t require a lot of background knowledge or analytical skills. This is especially relevant when you trade stock indices with the help of real professionals. Learn more about this trading venture and take advantage of the most demanded services offered by our indices forex broker.
Basics of indices in stock trading
Before you explore the advantages of indices, you should find out some basic information about these assets. Stock indices are assets that include different shares and stocks. The function of these indicators is to reflect changing costs of these groups of stocks. These groups are formed by certain characteristics. Such a concept allows us to say that stock indices aren’t as risky as other tradable assets. Here you don’t rely on an individual share of a certain publicly traded company, you mitigate the risk by relying on several securities that are listed on stock exchanges independently.
Compilation of indices allows you to create indicators that will help determine the direction and rate of change in the quotes of corporations from a certain industry. Different aspects can affect the rates of industries. It can be influenced by global events, financial predictions, and even natural disasters. All these factors can make influence companies in certain sectors, which will later lead to the changing value of an index.
Before you choose the best stock market index to trade, we recommend exploring the basic types of indices.
Benchmark indices. These indicators include securities of companies that pass severe regulations. Benchmark indices are often considered to be the safest option for investments. They might include the best-performing companies. Nifty 50 and BSE Sensex are the most popular assets in this category.
Sectoral indices. These indicators pick companies that are active in certain specific sectors. These might be healthcare, banking, or entertainment industries. Exchanges can’t have indices for all the sectors, but their selection is quite big.
Market-Cap-based indices. These indicators include companies based on their market capitalization. The approaches to picking up the securities might be different. Some indices choose small-market-cap companies, while others include businesses with big market capitalization.
Why follow the list of major stock market indices?
Even analysts and investors who don’t trade indices often follow them. They do this because indices are good indicators that might help in specific purposes. For instance, they are often used by investment managers as benchmarks for performance reporting. Except for investing in indices, investors, for example, can use them as guides on allocation. A stock market index can collect big quantities of data that might be useful for different types of participants in different financial markets.
Index trading is available for traders with smaller capitals. These are passive instruments and their management fees are more affordable than active assets.
You don’t need to have a lot of knowledge in trading. It’s much easier to trade indices that combine different securities following certain features than to look for separate shares and create an investment portfolio.
It’s convenient to invest in hundreds of stocks simultaneously.
Indices provide great diversification to your investment portfolio.
You can lose your money. Any investment involves risks but when you invest in indices your funds aren’t protected with a floor to losses.
It’s impossible to add or remove any securities from an index.
You cannot beat the market. In general, market returns are the only profits you can count on. This means you won’t make very impressive profits when trading indices.
Your access to global markets is DotBig
DotBig is an indices forex broker that provides exposure to different financial markets, including the possibility to trade stock indices. Diversify your portfolio and add promising assets from other markets, too. Use the most top-notch tools of the DotBig forex broker to analyze data quickly and efficiently. Learn more about other assets offered by our trading platform and find out the advantages and disadvantages of trading in different financial markets!