indices-trading-heading-iconIndex Trading

Index trading with AlphaBinary

An index represents a portfolio of stocks which comprises of a segment of the overall market and is widely acclaimed as it offers high-end opportunities in index trading.

For Example: The S&P 500 which is a stock market index and has a portfolio of 500 companies traded in America. In the S&P 500, a trader might find listed companies such as the Apple Inc; Accenture Plc; Abbott laboratories; Amazon.com Inc; CBS corp; Cisco systems and many others. All the profits of these respective companies determine whether the S&P 500 is going to be bullish or bearish. Thus, index options trading becomes an interesting venture if the proper knowledge and training is imparted to traders pertaining to trading indices.

Basically trading indices online has become a well-known trading practice over the years and has led a lot of traders into making worthwhile gains. Stock indices trading were introduced in the late 1800s , like the Dow Jones, which started with only 12 companies listed in the stock, and has now 30 companies listed.

Many Investors have a preference for trading indices, as index options offer an exposure to the entire market and are often a single trade decision. It is normally difficult to track every single security trading in a particular country. Therefore, indices trading becomes handy, as it offers much more and investors get an insight on various companies under one index holding.

How were indices traded in previous times?

With the advent of the digital age, trading indices has become a lot more easier. Previously, Index trading had to be kept as simple as possible. In earlier times, calculating outcome were simple but displayed only an average of the profit share of companies. For example; long ago in the Dow Jones, prices of 12 companies were summed up and divided by 12. Nothing, but an average was obtained, but anyhow it served the purpose of trading indices.

An insight into the new trend of trading indices

Nowadays, the price-weighted index is the new trend for indices trading. In binary options trading each stock within an index influences the index with relation to its price per share. The basic calculation remains the same, as all prices of stocks in the index are totaled and divided by the number of stocks listed on the index. Following the process, the stock with a higher price will be granted more weight. By so doing, the highest stock will have a greater influence over the performance of the index.

Example of the function of price-based-weighting

In a given scenario, if an index contains only two stocks in which one is priced at $1 and $10 respectively, the $10 stock will be weighted nine times higher than the $1 stock. The $10 stock will ultimately represent 90 percent of the index.

The role of market capitalization in price-based weighting

Market capitalization refers to the value of a company’s outstanding shares. The calculation of market capitalization is done by multiplying a company’s outstanding shares by the current market price of one share. By so doing, the size of a company can be determined. When a company’s size is explicitly explained, it helps to analyze the asset allocation and risk-return parameters for stocks mutual fund.

A glimpse of other indexes around the world

The FTSE 100 – United-Kingdom

The CAC 40 – France

The Nikkei – Japan

The Dax – Germany

The Hang Seng – China

The S&P/ TSX Composite index – Canada

Overall in the world there are a basket of indexes which cover any market and listed above, are the main indices that are traded in main countries. These indexes have a huge impact on the trading market and are the most traded, amongst others. It is important for traders to gather correct information about these main indices they want to trade on. Basically, every index requires a proper research, in order to increase the profit outcome.

How can an investor efficiently trade indices?

Index trading is a great way of earning profits in thousands, but it is vital to know how and when to invest. Indices are a great medium of showing how well a market is performing and which direction certain companies’ stocks are taking. Talking about index funds, in the same context, these funds are also referred as mutual funds.

A mutual fund is fundamentally an investment vehicle designed as a pool of funds which is accumulated with the intention of investing funds in securities. These securities are stocks, bonds, money market instruments and similar assets. These funds are organized by a manager who in turn invest the fund’s capital in the quest to produce capital gains.

Mutual funds offer access to small investors to manage their funds professionally and at the same time diversify even with a small investment. Every shareholder mutually agrees to participate in the gain or loss of the fund.

Conclusion

Indices trading allows most traders to make the most out of their capital that they intend to invest. Investors are definitely given the opportunity to achieve their market return. With a thousand of indexes around the world, choose your best broker, choose AlphaBinary and open an account for your endeavour in trading indices.