The stock market is currently governed by index trading, which is a way of averaging the profits and losses of companies and world economies.
In view of this economic breadth, this article provides you with information about index trading and its advantages.
In addition, it describes what index trading means and benefits, ways to calculate them, indexes that lead the world market, price behavior.
Let’s see what indexes mean
Indices are responsible for measuring the performance of a company’s assets that make quotations on a stock exchange. They draw up a list of all the companies that participate and thus estimate the performance of each of them.
Index trading is a world of its own; you must know certain indicators and use specialized tools. For example, it is vital to use a broker for trading indices.
The Dow Jones index is one of the most recognized indexes due to its great competitiveness and excellent performance since it follows the performance line of the 30 most important American companies.
Definition of index trading
It is the purchase and sale of a given stock market value, where each investor makes the offer, considering the average yield of the shares. The value is variable; sometimes it increases and sometimes it decreases.
Now, in the online system there are two main modes such as: CFD; known as cash index and index futures CFD. The cash market has no expiration time, while the futures market has an expiration date, which is known as “rollover”.
Ways to calculate stock indexes
One of the ways to make the calculations is by means of the market capitalization method, which consists of estimating how much each share of the company is worth considering the total price in dollars and the market price.
Consequently, this calculation is obtained by multiplying the shares that are in movement within the stock market by the current value of the company’s share. Using this procedure provides companies with better returns in terms of the value of the stock index.
Indexes that lead the world market
The following are the names of the indexes with the best incidence in the world economy; many of them have first level shares allowing them to be consolidated companies positioning billions of dollars in their capitalization, from there they are respected as leaders in the economic policy of the world.
In this regard, the axi.com website refers to the following indexes: Dow Jones Industrial Average- DJIA, S&P 500, Euro Stoxx 50, Nasdaq 100, Ftse 100, Dax 30, Cac 40, Nikkei 225, Hang Seng and Asx 200.
Price behavior in the index market world
The prices that drive the index market vary depending on external factors such as; recessions and economic crises; mainly when there is no confidence in the economies of some countries, prices will indisputably decrease.
In this regard, the components that most affect index market prices are the following:
Commodities: this item brings variability to the market and moves stocks firmly, any uncertainty will negatively affect the behavior of the index.
Global news: situations such as pandemics, epidemics or natural disasters will result in unfavorable impacts for the index market, since it decreases investment levels in the country that suffers such impact.
Economic news: situations such as economic events and everything related to decision making such as central banks, macroeconomic agreements; exert direct action on the variability of the index market prices.
Reorganization of the index: this implies the processes that can be generated as a result of the entry or exit of a company to the stock index, since as a general rule when this happens, prices are modified.
Advantages of index trading
There are many benefits that can have a company to be included in the index trading, in this aspect the advantages are described:
They have a better opportunity to position themselves either in the short or medium term to know how to rationally use the falls or increases in the prices of credit indexes.
Index trading is less manipulable, i.e., you do not really buy an index, you can only invest in it.
Index trading has its properties, features and properties; adjusting to the variability of economic situations.
It generates confidence and security with an integrated money management and also provides lower risks, because trading does not reach the level of economic bankruptcy.
To start trading is simple, which is why it is necessary to have a trading account to have access to the most varied world indexes, for example: Dow Jones, ASX 200 and others.
With little financial capital it is possible to start trading index activity, it does not charge brokerage commissions.