Indices also referred to as an index, are a collection of stocks and financial instruments that are used to track the growth of an industry or a sector. This allows traders to determine how the industry or that particular sector is performing.
For example, S&P 500 (USA), FTSE 100 (UK), and DAX 30 (Germany) are some of the major indices across the globe. These are the mentioned countries’ indexes, which include the largest companies there. An index tracks the publicly traded stocks collectively and with this traders can understand how the markets work.
By investing CFD indices, you can speculate on the price movements of the indices i.e., rising or falling prices, without actually owning the underlying assets. Indices markets are highly liquid and you can make high potential profits with the right opportunities.
While trading indices with CFD, you get to go long or short. Which means, you can the index buy (go long) when you think the price will rise and you sell the index (go short) when you think the price will fall. Your profits will depend on the accuracy of your speculations or predictions as well as the overall size of the index’s market movement.
With CFDs, you can trade with leverage. Which means you can borrow the funds from the broker and open bigger positions even with the small initial deposit. You can maintain the margin and open a much larger position.
Please note that with leverage trading, the profit or loss gets calculated on the entire position size and not only the initial margin that’s used to open the position.
A market pullback usually lasts for 3 days. And you can setup your trading rules to buy a stock index. Wait for 3 or 2 consecutive daily red candles. Then on the 4th day, you wait for a pullback. If on the 4th day or 3rd day, it breaks below the low of the previous day, then wait until the markets regain its strength above the opening price of the 4th / 3rd day.
Seling an index is different than buying it. You can sell an index when there is weakness in the stock market. It is safer to sell the stocks when you see that the market is starting to come down and there is a downward trend on the price structure – which means lower lows and lower highs.
You can trade stock indices after big announcements are made such as mergers, any new trade deals, etc. You can also keep track of the trading calendar to anticipate your next break.
News has a great influence on the financial markets and can lead to price movements. When there is big news like FED meetings, NFP reports, etc., you can wait for the news to settle and trade on the aftermath of the index’s price reaction.
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