Are you thinking about investing in CFD indices? Well, you must first gain a basic knowledge of indices. You must have heard about the terms “indices” or “index”, but have you ever wondered what they are or how do they work? Indices are the collection of multiple stocks or companies in the exchange, where traders are allowed to speculate on the price movements, collectively, and make profits.
Basically, indices measure the performance of various stocks from the stock exchange. These include markets of various industries, countries, etc. Some of the major examples of indices are – FTSE 100, Dow Jones, DAX, Nasdaq 100, etc. Trading CFD indices on mt4 trading platform provides you the exposure of the entire sector or economy at once, all this while opening only a single trading position. You can speculate on the prices of rising or falling indices without having to own the underlying asset. Indices markets are highly liquid and these markets have more trading hours than the other financial markets which give you the benefit of long exposure to opportunities.
Most of the indices are calculated according to their component companies’ market capitalization. This provides a better weighting to companies with larger caps. This means the performance of bigger cap companies affects the index’s value more than the companies that have a lower cap. However, there some indices which are price-weighted, including DJIA (Dow Jones Industrial Average). The price weighting method gives more weight to the companies that have higher share prices. This means when there is a price change in these companies’ shares, there is more effect on the current price of that index.
Prices of the indices and the market volatility are affected by various factors such as political events, any major factors affecting a particular company in its sector, and economic data like the employment data as well as changes in currency markets. You can identify the factors that movie the markets by economic news, company financial results, company announcements, changes to an indices composition, commodity prices, etc.
