FxBrokerReviews.org – Indices have become a popular choice amongst most traders today. It allows traders to trade on a market’s price action rather than buying and selling in individual assets of that market. Indices depict the movement and track the overall developments of stocks and the market. It allows us to analyze how the market is performing, and to understand investment opportunities along with market fluctuations.
Indices in the stock market are calculated based on market capitalization, the size of companies, and more. The calculation of indices also depends on the company as some give more weight to stocks with higher prices, while others consider market capitalization, and a proportion of companies may even weigh all stocks equally.
However, if you are a beginner wondering how to start online indices trading then it is best to register yourself with a reliable and experienced broker. To fully realize the benefits of indices trading it becomes crucial to select only the best indices trading platform.
Read this complete guide about Indices trading, the types of indices to trade, the best indices to trade for beginners and a lot more!
What are Indices?
In simple terms, indices track the overall performance of the stocks. They act as measuring tools to assess the performance of the price of a group of shares from an exchange. Indices focus on speculating a group of commodities and assets rather than just individual stocks. The biggest advantage of trading indices is that it allows traders to get access to a market at once, only by opening a single position.
Why trade Indices?
Trading in indices makes investing in a specific market segment easier without having to own individual underlying stocks. They help the trades to speculate the market well and make moves that trigger the growth of the stock market. Moreover, indices are less volatile than individual stocks which makes them less risky as compared to other assets. The performance of a single stock does not have a major impact on the overall trade of the indices. Also for someone new to the market trading in indices seems to be a safe and less risky investment. Dow Jones Industrial Average – DJIA, S&P 500, EURO STOXX 50 are some of the best indices to trade today.
Best Indices to trade today
There are various indices in the market to trade today, but generally, the indices are divided into 4 different categories. In the list of the best indices to trade today Dow Jones Industrial Average and S&P 500 top the list. The Dow Jones is one of the oldest standing index in the market and is widely popular. Take a look at the list of other indices you can trade
The four divided categories are as follows :
- Large U.S. stocks: like S&P 500, Dow Jones Industrial Average, or Nasdaq Composite
- Small U.S. stocks: like Russell 2000, S&P SmallCap 600
- International stocks: including MSCI EAFE, MSCI Emerging Markets
- Bonds such as Bloomberg Barclays Global Aggregate Bond
Following is a list of the best indices to trade today
- Dow Jones Industrial Average – DJIA
- S&P 500
- Nasdaq 100
- EURO STOXX 50
- FTSE 100
- Nikkei 225
- ASX 200
- DAX 30
- Hang Seng
- CAC 40
The indices mentioned above are also the best indices to trade for beginners or for people who are new to index trading.
Types of Indices you can trade
Apart from stock indices, there are various other indices like bonds, commodities, and more that you can trade. You can trade your preferred indices with the help of your broker or trading platform that you have registered yourself with.
Stock indices are the most common type of indices that are traded in the market. A stock index is calculated with the help of the price of its constituent stocks. The NASDAQ is considered to be one of the most preferred choices to trade stock indices.
Commodity indices are traded in the futures market or follow the futures contract i.e. trade takes place at a future date mutually agreed upon by both sides of the investors. The price is set on commodities like gold, coffee, sugar, crude oil, and more.
Bond indices usually are traded with the purpose of speculating sectors of the bond market like government bonds, corporate bonds, municipal bonds, and more.
Currency indices are designed to mark the changes in the value of the currency. They do that by tracking the exchange rates of currencies that have the highest liquidity on the market.
How are stock market indices calculated?
Stock indices are calculated in various ways, but two major formulas are used worldwide to calculate the stock indices namely Market capitalization and price weight. Read below to get a detailed understanding of both the formulas
1. Price Weight
In price-weighted indices, the stocks are weighted according to price of the share instead of the size of the company. This means that companies with the highest share prices have a stronger impact. These type of indices are not very common in the market. Indices like The Dow Jones Industrial Average is one of the example of a price weighted indice.
2. Market Capitalization
Most of the stock indices in the market are calculated on the basis of market capitalization. The value is determined by the its constituent companies. Market cap is calculated by multiplying a company’s stock price by the number of outstanding shares. Companies that have the largest market capitalisation has the highest influence over the value of the indice. The FTSE 100 and DAX 40 are examples of market-value-weighted indices.
What effects the prices of the indices?
The movement of the index price primarily depends on external factors. The economic condition of the country also significantly influences the movement of the price. There are several other factors that moves the index price, read below to know more :
1. Prices of commodities
Any fluctuations in the price of the commodity affects the price of the indices as well. For example : the share prices of any major oil companies may climb due to a rise in the price of crude oil (which is a commodity) , thus moving the price of the indices that follow their stocks.
2. Economic News
Positive economic releases in any country may lead to a positive move in the price of the indices and vice versa. Factors like bank interest rates, monetary policies, employments, trade agreements contribute to the move in the price of indices.
3. Company related news
Any major changes or developments in the company like new leadership, mergers or acquisitions also affect the rise and fall of the indice price in the market.
4. Geopolitical Events
Elections or major political events and decisions in the market can affect stock and FX market performance thus leading to a move in the price of the indices. For example: events like a pandemic, war or even a natural calamity may show negative impacts on the condition of the market.
5. Index reshuffle
Index reshuffle means the addition or removal of a companies stock from the stock index. This causes a change in the price of the indices. Some stock market indices rebalance on a regular basis to ensure all their constituent companies continue to meet the listing requirements.
What are the best indices trading platforms?
There are various brokers in the market globally that offer services and facilities to trade indices and various other assets. Therefore, it is important to find the right platform that is reliable and suits your trading needs. The best indices trading platform is the one that offers a combination of value, great service, variety of features and more. Below is a list of some of the indices trading platform to consider from
- Saxo Markets
- Interactive Brokers
Lets take a detailed look at each of the platforms.
E-toro is the favourite trading app as it provides low costs and is commission free. It is one of the best index trading brokers in the business.The platform offers a wide range of financial products, including indices, currencies, exchange-traded funds (ETFs) and bonds to trade and more than 2400 stocks to trade.
The trading platform supports features like copy trading, social strategy and a demo account that helps traders identify trading strategies.
Though the platform charges additional fees like withdrawal and foreign exchange fees it is considered to be one of the most cost-effective platforms with plenty of incentives.
- eToro provides real-time access to thousands of stocks, ETFs from top exchanges.
- The platform allows new as well as experienced traders low-cost trading with various incentives.
- It allows beginners to open a demo account.
- It supports features like copy trading.
- The trades are commission-free and low-cost.
- The platform charges withdrawal and forex fees.
- The registration process is quite lengthy.
2. Saxo Markets
SAXO Markets have been rated as the best trading platform in the UK in terms of the number of funds available to invest. The platform allows trading in more than 60,000 financial products from stock markets across the world.
The platform provides a rich trading experience with a wide range of tools and premium features. It is a highly safe and low-risk broker for trading as it operates three regulated banks.
The web-based platform of Saxo Bank, SaxoTraderGO is by far the best trading platform. The intelligent design of the trading platform allows trades to view News, market analysis, trading signals and a lot more.
- The pricing offered by the platform for premium and platinum users is highly competitive.
- SAXO has different transaction fees grouped into trading tiers depending on the trade frequency and lot.
- The platform provides interactive charts and research content to analyse the market.
- It charges high inactivity fees.
- The trading tiers can be complicated for beginners.
- The minimum investment amount is quite high (£500).
3. Interactive Brokers
Interactive Brokers comes in the list of one of the best indices trading platform. It gives access to multiple stocks, options, futures, currencies, bonds, as well as investment funds. It provides various trading strategies along with sophisticated technical analysis. For index ETFs the commissions begin at $0. There is no minimum balance required to open accounts with the platform.
The platform is accessible across a wide variety of countries, including the U.S., U.K., Germany, and France.
- The platform allows to trade indices via ETFs, futures, and options.
- Traders can extra by holding for the long-term and lending your securities to short sellers.
- The platform provides 24×7 access to its customer support.
- Interactive Brokers is regulated by the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC), while in U.K. it is regulated by the Financial Conduct Authority (FCA).
- The platform may be a little complex for beginners to understand and trade. It is designed mainly for advanced traders.
NAGA comes under the list of the best UK trading platforms. The platform provides social networking as well as financial inclusion under the same platform.
It offers multiple instruments such as Forex, Stocks, Indices, Stock CFDs, Cryptocurrencies, Commodities, Futures, and even Exchange Traded Funds. Also, it provides more than 500 instruments on the Forex platform where stock traders can invest without commissions.
It is registered under European legislation and is recognised by the Cyprus laws. NAGA allows its traders the feature of copy trading and provides The Meta Trader4 and 5 platforms.
- The platform has huge product offerings.
- NAGA is strictly regulated under the Cyprus laws.
- Provides support in multiple languages.
- It does not charge any deposit fee.
- Provides personal trading assistant to all its traders.
- Charges account withdrawal fees.
- It Is Not the best trading platform for beginners.
- Does not provide copy trading for demo accounts.
Indices trading can be a gateway to trading for beginners. It is easy, less risky and has chances of better returns. index trading allows all traders to speculate the price of various assets and manage their portfolio without incurring all of the unnecessary stress of buying and selling. However it is important to carefully select the platform for trading indices.