Trading indices rather than individual equities enables a trader to speculate on the performance of the entire benchmark. Similar to FX, indices can be traded by individuals as a tool to diversify the investments portfolio.
What Are Indices An index is a statistical measure of the changes in a portfolio of stocks representing a portion of the overall market. In other words, it’s a benchmark value of a basket of stocks. It can get too difficult to track every single security trading in a country. Therefore, indices offer a workaround on this issue by sampling the market.
Why Trade Indices The top reason one would give indices a try is that it reduces the risk of trading individual companies, and allows a trader to take a broader view of the group of companies. By trading global equity indices, a trader is able to geographically diversify his or her portfolio and potentially profit from the growth or contraction around the globe.
RISK WARNING: CONTRACTS FOR DIFFERENCE (‘CFDS’) ARE COMPLEX FINANCIAL PRODUCTS THAT ARE TRADED ON MARGIN. TRADING FOREX AND CFDS CARRIES A HIGH LEVEL OF RISK SINCE LEVERAGE CAN WORK BOTH TO YOUR ADVANTAGE AND DISADVANTAGE. AS A RESULT, FOREX AND CFDS MAY NOT BE SUITABLE FOR ALL INVESTORS BECAUSE YOU MAY LOSE ALL YOUR INVESTED CAPITAL. YOU SHOULD NOT RISK MORE THAN YOU ARE PREPARED TO LOSE. BEFORE DECIDING TO TRADE, YOU NEED TO ENSURE THAT YOU UNDERSTAND THE RISKS INVOLVED TAKING INTO ACCOUNT YOUR INVESTMENT OBJECTIVES AND LEVEL OF EXPERIENCE. PAST PERFORMANCE OF FOREX AND CFDS IS NOT A RELIABLE INDICATOR OF FUTURE RESULTS. MOST CFDS HAVE NO SET MATURITY DATE. HENCE, A CFD POSITION MATURES ON THE DATE YOU CHOOSE TO CLOSE AN EXISTING OPEN POSITION. SEEK INDEPENDENT ADVICE, IF NECESSARY.
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