What is Indices Trading?

Indices trading is a type of speculation in which your returns are tied to an index. I can also assure you that it has nothing to do with rolling dice. If you're new to the world of investing, you may be unsure of how trading indexes works or how it can have an impact on you. Read on to learn about this kind of investment.

What is an Index?

In this case, I'm not talking about that section in the back of a textbook that tells you what page to find certain topics on. In this article, I'm talking about a financial compilation of securities.

An index is a combination of many financial securities.

For example, a popular stock index is the S&P 500 (why I don't know, because S&P sucks). The S&P 500 consists of the stocks of 500 top companies. All of the values of those stocks are added up and this gives you the cumulative value of the index. If the cumulative value of all the stocks in that group goes up, investors make money. If it goes down, they lose money.

Trading Indices

When it comes to making money on indices, you can work with a broker that allows this practice. Many brokers, including Forex brokers give you the option of trading indices. You buy a certain amount of shares of an index and then hold those shares.

Another way to benefit from indices is to trade futures contracts on them. With a futures contract, you essentially bet that the index is going to go up or down in value. You can always sell the contract to make a profit also if you choose.

How Does This Relate to Forex?

If you're a regular reader of the site, you may be saying, "Ok, this is great and all...but...how does this apply to the Forex market ?" Indices can impact the foreign exchange market in a number of ways. If a financial index goes way down, it can negatively impact the value of a currency. If the financial index goes way up, it can significantly help the value of that currency. Indices don't usually impact a currency all by themselves, but they can sometimes be an indicator of what will happen in the Forex market.

If you trade in the Forex market often, it can be a good idea to learn about other forms of investment so that you can better diversify your portfolio.

If you just stumbled across this site to learn about indices trading and you'd like to learn more about Forex trading, click here to check out our Forex guide . Thanks for dropping by FTR!



Return From Indices Trading to Forex Market News

Return From Indices Trading to Forex Trading