Indices Trading Guide:
Working in the financial markets, especially in the indicators that are part of contracts for differences with leverage, requires that the trader have knowledge and experience of several things before entering this field, and the most important of these things is for the trader to know that he may be exposed to some losses that may exceed the size of the deposits. Therefore, the client must have complete knowledge of how to manage funds and understand the extent of risks.
Follow the movement of the financial markets when investing in indices, and learn about all the rules to be able to expand and profit in the financial markets. Learn about the purpose of the basic and subsidiary stock indices, and the method of compiling them. Also learn about how to keep up with these changing markets through several investment tools that are considered the most widespread. Worldwide. Below we will discuss some important concepts and terminology that you must know before entering the field of trading in indices through the financial markets.
What are indicators?:
Indices meana virtual group that measures the prices of stocks available on a stock exchange, a specific field, or a specific industry. The index price is linked to all the stocks that are part of it. This is why trading a specific index is considered as if it were trading in every stock available in it. The indicators include several different types, including the following:
- Major or global indicators: Major indicators represent the most important means of measuring the performance of a specific type of major industry, or the stock market of an entire country, or a sector. This type also represents a measurement of a small sector or sector of the economy, such as the Dow Jones Industrial Average. This index is used as an alternative to a country’s economy. For example, in the United States there is the S&P 500 index, and in Britain the FTSE 100, or in Japan the Nikkei 225 index. Morgan Stanley Capital International offers 1,500 stocks drawn from all of the world's developed markets. This index is usually used as a benchmark for international equity funds. These types of indicators are made available through some giant companies in the financial markets, such as the Financial Times 100 Index.It is the private property of the London Stock Exchange and the Financial Times newspaper, while the leading and giant company Standard & Poor's owns the S&P 500 index, and so on for the rest of the major indices.
- National indicators or regional economic indicators: This type of indicator shows the state of the stock market of a particular country and is considered less followed by investors. It also shows the mood of the trading market on the stocks available in this market. For example, the FTSE 100 Index shows nearly 100 major companies in Britain in the same way as the London Stock Exchange (LSE), the FTSE Developed Asia Pacific Index, or in Hong Kong via the Hang Seng Index, or the Kospi Index in South Korea. , or the S&P/TSX index in Canada.
- Sector indicators: This type of indicator is considered more specialized, and it works to follow the performance of specific industries or specific fields. For example, the Stanley Morgan Index, which tracks the performance of 36 American companies in biotechnology, and the Wilshire 5000 Index for all listed companies in America. .
- Other indicators: In addition to stock indices, there is another type to track other financial markets that have an impact on the economy.
Examples of these important indicators include:
- Currency Index: The US Dollar Index shows the price of the US Dollar against other in demand foreign currencies.
- Commodity Indices: The Continuous Merchandise Index includes 17 types of deferred contracts for commodities that are being continuously re-stabilized.
- Market Psychological Indicators: The CBOE (VIX) index shows short-term volatility potential. Measurements are taken via S&P 500 option prices.
How to trade stock index:
Stock indices may not be traded directly, but they are not real commodities. They exist solely for the purpose of providing information, which is why you cannot buy or sell part of the index. But alternatively, people trade indices via financial instruments for example: long-term contracts, CFDs, or Forex trading. In fact, stock indices are the most popular way to trade CFDs.
On our Arab Financial website, we provide a wonderful number of brokerage companies that provide trading services on long- and short-term contracts on a wide range of indices, through which you can trade with many indices even if the markets are closed. To learn more about that, we recommend visiting the Forex company reviews section. That we offer to you.
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How to trade indices:
The index is a mathematical entity, so it cannot be traded. Despite this, the presence of ETFs and CFD funds represents the index entity or has a price depending on the index.
Indicators that can be viewed:
There is a specific indicator for almost every branch imaginable in the economy and stock markets, such as major indices, and this type represents the best way to know and measure the performance of any field, any industry, or the stock market in a country.
Here's an example of a CFD:
If you expect the S&P 500 index to rise above its current level of $2.335, you can buy 10 CFDs with an execution price of 2.335 (Strike price), bringing the total value of the contracts to $23,350, but since you are trading with a leverage of 1 :100, it requires you to place only $233.50 as a margin for the trading process. The value of the S&P 500 will rise by one dollar whenever it moves a point, or a dollar will fall if it falls by a point, and so on.
Every time the index moves one point, $10 rises. For example, if data is released from the United States indicating that the GDP is higher than expected and the S&P 500 rises to 2350, only then can you close the deal and earn $150.
Expiration date of contracts:
CFDs that are based on cash and do not have a specific expiration date, while CFDs that are based on deferred contracts. This means that you can wait until your trading transaction is automatically closed at the end of the expiration date. You can also close it manually before the expiry date.
Before the expiration date of the trade, there is a period of 10 to 18 days during which the investor can purchase new contracts across the same index with expiration dates at another time.
Movement in the lot: If you invest in indices, you should know that a lot is equal to one contract, and every movement in the lot, whether up or down, is equivalent to 1 dollar.
Point movement: A point is a measure of the value of the stocks on which the index is based. Since indicators are mathematical measurements of major securities, the value of the pip movement varies from one indicator to another, and it is estimated at a value of $10. Each pip movement in index-based CFDs is valued at $1.
Conclusion: Indices are one of the branches of trading and are the most common in stock markets, but they are a virtual set of measurements that are relied upon to know the value of stocks that cannot be purchased, but can be traded through some investment tools. Indicators also have several types that you can choose from. If you have a sense of expectation and the ability to predict financial market changes, you can earn a lot of money by trading indices
