One of the lesser known areas of the financial market is world indices or index in the singular form. XTrade Europe offers their clients an opportunity to invest in worldwide indices, but they found that not many traders fully understand what they are.
Simply put, an index is a portfolio or collection of securities that represent a particular part of the market. There are thousands upon thousands of stock market shares that an investor can choose from, and it may be daunting to pick just one share to invest on.
Knowing that a certain area is governed by the same geopolitical and social factors, it is sometimes a wise decision not to look at individual stocks but one market segment, or indices. Market analysts from XTrade Europe always advice traders to invest on indices. Trading indices not only diversifies their portfolio, but they are also sound trading instruments.
An Introduction to the World’s Major Indices
There are two types of indices. National indices measure the stock market performance of countries, while global indices measure the performance and price change of major corporations. Global indices disregard geographical locations or countries. Companies that are part of major global indices are usually blue chip companies that are consistent performers in the financial markets.
Examples of American indices are the Standard and Poor’s 500 (S & P 500), which consists of the top 500 leading US companies. This index covers about 75% of American equities. The Dow Jones Industrial average index, on the other hand, is composed of 30 of the largest and most exclusive blue-chip stocks that are traded in the U.S.
The FTSE 100 Index is comprised of 100 of the biggest United Kingdom blue-chip companies traded on the London Stock Exchange. The CAC 40 is France’s benchmark stock market index, which comprises of 40 of the biggest equities listed in the country. The German counterpart is the DAX 30 index.
The Nasdaq Composite Index is widely known for having most of the technology stocks. These are mostly technology companies in the U.S, and even outside the U.S. However, it also contains stocks from financial, transportation, insurance and manufacturing industries.
Stocks from the European market, Far East, Australia and New Zealand are part of the MSCI EAFE.
How to Trade Stock Index CFDs
XTrade Europe financial advisors always recommend traders to invest in indices because they are actually less risky than trading shares. When you trade in indices, at least you are able to spread the risk of the trade in the entire market instead of pinning your hopes in just one company.
All major world indices are governed by their own methods of calculations. In looking at an index table, simply look at the percentage change, which is more important than the numeric value. If the percentage change increases, then that means that as an investor, you stand to gain.
Trading indices are prone to risks, particularly global events such as terrorist attacks or natural calamities.
In most online trading platforms such as XTrade Europe, they require no commissions but have fixed spreads. Traders can also trade global indices CFDs with leverage. The advantage of using an online platform is that you get real-time rates on major world indices.