LiteForex’s clients can trade indexes by buying or selling them as if they were usual stocks. A trading index includes a certain group of companies, and its price reflects an average price of these companies’ stocks. Contracts for difference on stock indexes have an expiration date and belong to unlisted trading instruments; they let a trader speculate on changes in the price of the instrument that a contract for difference is based on.
Indexes are usually linked to a particular region, and each of them can estimate the state of economy in this region. If an index falls due to a decrease in the price of the companies’ stocks included into this index, it indicates possible problems in the whole economy or in its portions.
For instance, FTSE100 is often used as a barometer of the British economy. Thus, if you consider the economic prospects of Great Britain to be negative, you may go short and sell FTSE100 expecting that the price of the index will decrease. Other popular regional indexes are DAX30 (Germany) and CAC40 (France).
Besides reflecting a general economic state, indexes can estimate the prevailing market sentiment. Thus, you can understand whether most investors are bears or bulls and rely on this information when forming your own strategy.
Those traders who trade indexes have a sheer advantage over other traders due to the high liquidity of this tool, the opportunity of hedging risks and low margin requirements.