Are Indices/Index Markets Good Investment Options?

Written by Nigel Simpkins

What are indices & are they a good investment option

Indices, also known as indexes could best be described as a singular yet all-encompassing price for a set amount of shares or stocks. Index markets are the end products and such markets are personified by popular ones like the FTSE 100 or the Dow Jones Industrial Average. Sometimes an index market is composed of nothing but blue chip stock companies like Amazon, Disney or Apple. The point is an index market is made up of several stocks or companies that need to meet certain criteria for membership. It’s impossible to invest directly in an index, but you can invest in a fund or use spread betting to invest in an index market, which means that you’ll be able to bet upon or speculate on how many points the FTSE 100 for instance will rise or fall. 

Why is spread betting ideal for indices?

Spread betting is quite frankly put, the ideal manner in which to involve yourself in the movements of indices/index markets.  And this is because spread betting avails itself to a much wider trading audience through the way it works. Conventional old school Wall Street trading, which was and is prohibitively expensive requires that you buy actual stock and that means buying a set amount thereof too. With spread betting you’re not forced to purchase any stock and this fact alone means that the entry-level point is dramatically lowered. This is why more traders choose spread betting and it’s also why the world of trading has been able to appeal to more members of the general public. With spread betting you’re betting on the performance of a stock, a currency pair, a commodity or in this case, the performance of one of the many indices markets. You can enter your trade and choose when you’d like to exit based on how many points you think a specific market, maybe the Nasdaq, will rise or fall. Unlike conventional trading that asks that traders have at least $25 000 dollars in their trading accounts, spread betting allows entry into its world with as little as $500. Plus, spread betting allows for ratios of 50:1, meaning that your $500 could give you a total trade leverage of $25 000.  

How to monitor index market prices

It might sound clichéd, but knowledge is power and there are various easily accessible ways to monitor the price movements of index markets, mainly by way of financial news outlets as well as UK sites with latest updates on indices trading. Read up on economic news by subscribing to relevant forums.  Monitor company financial results as profits and losses will impact the bottom lines. Take heed of company announcements – mergers, a change in leadership, the announcement of new products or new technology all play a part in an index’s price. Pay attention to commodity prices as these often account for production costs – think about the internal components of your iPhone – gold, copper, silver – these too can impact prices. 

Other helpful tools

The arsenal of helpful trading tools is extensive enough to aid you in your indices endeavours. It’s always advisable to first try an online broker’s demo account software before parting with any of your own money. Not only will this help you to save money, but it will provide valuable insights and allow you to learn about the basic trading environment. You’ll be able to have a look at index markets as well as a slew of other markets, all while inspecting what style of trading is best suited to you. Most brokers sell something called heat maps and these can prove particularly helpful when it comes to indices. Automation software is also available – ideal for novice and seasoned traders alike and lastly, although not finally, it’s important to note that the volatility of indices is less than those of currencies or commodities.