- High liquidity;
- Reduction of market risks through hedging;
The indices are perfect for speculative trading as this
instrument is sensitive to economic news releases;
- Low margin requirements;
- Diversification of investment portfolio between different financial tools.
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.
American Stock Exchange S&P500 index
American Stock Exchange S&P500 index includes 500 shares of US companies with the largest capitalization. The composition of the list is determined by the Index Committee of Standard&Poor's, which is its rights holder. A prerequisite for the S& P500 list is the absence of low-liquidity and privately owned companies. Each S&P500 company's weight is determined by its total capitalization, and the value of the index is determined by the weighted capitalization of its companies.
The proportional breakdow of companies' performance indicators within the S&P500 index is as follows: industrial enterprises which dominate the list in the amount of 400, transport corporations - 20, financial and utility companies - 40 each. Shares of the companies included in the S&P500 are traded mainly on the New York Stock Exchange and NASDAQ. As the most frequently used trading tool on the US equity markets, S&P500 index is a kind of national economy indicator. At its core, S&P500 index is an indicative US security.
American Stock Exchange Dow Jones Industrial Average (DJIA) index
American Stock Exchange Dow Jones Industrial Average (DJIA) index is the oldest market index created to track the development of the American industry. Initially, the index was calculated from the formula of arithmetic average value of the shares of industrial companies in the DJIA. However, the term "industrial" is now a tribute to history. Today, the index includes 30 of the strongest US companies, of which only a few are industrial conglomerates. The rest of the enterprises belong to such economy sectors as engineering, oil and gas, healthcare, pharmaceuticals, software development and computer technology, as well as telecommunications and electronics. In the calculation of DJIA the value of shares of the included companies is added up and then divided by the correction factor. This calculation method is a significant drawback, as if one of the companies included in the DJIA list has a smaller capitalization in comparison with others, but its share price is higher, it gets greater weight in the calculation of the index. Therefore, this trading tool does not reflect the overall activity of the US stock market and to assess its objectivity is often used in conjunction with the S&P500 index.
American Stock Exchange NASDAQ100 index
American Stock Exchange NASDAQ100 index is a trading instrument of the US stock market, which covers 100 high-tech companies with the greatest capitalization. NASDAQ100 index's distinctive feature is the fact that no corporations of the financial sector are included in the index. All shares of companies included in the index list are traded on the NASDAQ – the American stock exchange that is among the three major ones and specializes in automated quoting of shares of non-financial high-tech companies. The most well-known companies of NASDAQ100 index are Dell, Apple, Amazon, Google, eBay, and Facebook. The methodology for calculating the index is based on the weighted value of shares of the issuing companies. This calculation method means that the index is influenced by the shares of the companies in proportion to their market value. Tracking the weight of the shares of any certain company included in the list is difficult, but it is possible to monitor the situation in this industry at the moment. NASDAQ100's undeniable advantage is that it is ideal for trading futures contracts.
London Stock Exchange FTSE100 index
London Stock Exchange FTSE100 index is one of the key indicators of the economic state of the UK in particular and Europe in general. The index is calculated by FinancialTimes StockExchange Group, which is owned by the London Stock Exchange and FinancialTimes news agency. The index is diversified in virtually all major industries: engineering, oil and gas, banking, insurance and investment companies. But a large proportion of FTSE100 components are mining companies. It should be noted that FTSE 100 is the basic index for the calculation of dozens of world stock index of the FTSE family. The distinctive features of this index are the smooth ups and downs of its values and its ability to recover quickly after undergoing a deep crisis. Despite the global importance of FTSE100 index for the world economy, for a private trader there is no need to examine the state of affairs of each company included in the index in order to trade this instrument. Such an analysis is carried out only by representatives of FinancialTimes StockExchange Group. To profit from trading FTSE100 it is necessary to pay attention to the state of the UK economy as a whole and monitor the quotations of GBP/USD pair when preparing the forecast.
DAX30 index of the German stock exchange
DAX30 is a Frankfurt Stock Exchange index. It consists of 30 companies, including a couple of banks, several insurance companies, automobile giants BMW, Daimler, MAN, VAG, Volkswagen, and such well-known brands as Adidas, BASF, Metro, DeutscheLufthansa, Siemens, and others. The list of included companies is reviewed quarterly by DAX operators, the most influential of which is Deutsche Borse. Like the other major indices, DAX30 characterizes comprehensively the economic development of the region. Changes in the index can be assessed and forecasted using the economic calendar in Germany. And since the German economy ranks first in the European Union and fourth in the world in terms of development, the value of DAX30 index reflecting the situation in the economic sector is a global indicator. A distinctive feature of the index is considered to be its dependence on the situation in the engineering and manufacturing sectors of the region.
Euronext Paris CAC40 index
CAC40 is a Euronext Paris index, which composes in conjunction with the PSI-20, BEL-20 and AEX-Index a so-called "Big Four" of EuroNext Paris exchange and occupies a position in the top ten of the world's leading indices. 40 companies and enterprises, which are included in the CAC40 index, are selected from hundreds of companies with the greatest capitalization. However, the decisive factor when selecting a particular enterprise to enter in the CAC40 is stocks and transactions. These indicators determine the ranking and weight of the company in the list.
CAC 40, a French stock market index, is one of the most important European stock indexes, along with the British FTSE 100 index, the German DAX index and Eurozone’s general indicator STOXX 50.
EUROSTOXX50 index of Eurozone’s blue chips
EUROSTOXX50 Blue-chip index for the Eurozone is an underlying index that includes powerful companies with large capitalization. In addition, when preparing the list, such factors as the statistics of paid dividends and the implementation of social obligations are taken into account. Index has an industrial orientation: among the 50 participants who represent the energy, chemical and consumer sectors, only five participants are representatives of the insurance industry and six belong to the financial sector. The relevance of EUROSTOXX50 index is quite considerable, its performance guides both traders and representatives of the financial and economic sectors. EUROSTOXX50 most accurately reflects the overall situation in the euro zone economy, a negative change in the quotations of the shares of a single participant of the listing is reflected dramatically on the whole list. The index is calculated in the five major currencies, namely the euro, US dollar, British pound, Canadian dollar and Japanese yen. The index is traded on the Frankfurt Stock Exchange. EUROSTOXX50 index is used to calculate the so-called "sub-indices", consisting of chips of the largest companies of different countries. For example EUROSTOXX SUBINDEX demonstrates the development strategy quotations of the economies of Italy, France, and Spain.
ASX200 index of the Australian stock exchange
Australian Securities Exchange ASX200 index, or the S&P / ASX200 is the benchmark index for the financial markets of Australia region. It includes ASX100 index and the most traded securities of 100 companies and enterprises included in the listing of Standard&Poor's agency. It contains such "blue chips" as Australia and NewZealand Banking Group, CommonWealth Bank of Australia, BHP Billiton, Telstra, National Australia Bank and Rio Tinto.
The index is calculated based on the weighted values of of capitalization of each company included in the ASX200. Thus, the percentage of each company in the composition of the index depends on the total market value of its stock and other securities, in other words, the value of the security is multiplied by their However, the ASX200 index calculation formula contains a divider - the correction factor designed so that the value of ASX200 index is unchanged in the case of issuance by a particular company of additional securities in order to increase its market capitalization. The composition of the S&P / ASX200 index companies is reviewed by Standard&Poor's agency on a quarterly basis.
ASX200 index can be traded in the operation hours of the Australian Securities Exchange, namely from one to nine in the morning Moscow time.
Madrid Stock Exchange IBEX 35 index
Madrid Stock Exchange IBEX 35 index, or Iberia Index35, is a summary indicator of change in prices for shares of 35 companies included in its list, for the specified time period. The movement of the IBEX 35 index values up or down helps assess the state of the Spanish economy and its certain sectors in particular. The listing of the index includes enterprises and companies of the banking sector, metallurgy and mechanical engineering, construction and energy. Representatives of each industry included in the index IBEX 35 are selected based on the capitalization. The composition of the index is reviewed regularly in order to track the performance of other representatives of a particular industry. IBEX 35 index value depends directly on the performance of each sector: growth in one sector as a whole increases the index value, and vice versa: decline in the other causes a significant reduction of the index. It is worth noting that banks compose a large part of the index, so we can talk about a strong influence of the banking sector on the calculation of the index. IBEX 35 index can be traded in the operation hours of the Madrid Stock Exchange, namely from 11:00 to 19:30 GMT.
Hong Kong 50 index of the Hong Kong stock exchange
Hong Kong 50 index of the Stock Exchange of Hong Kong is the most influential stock exchange in South-East Asia. This index is the most accurate stock indicator in the world. The listing of Hong Kong 50 index includes the largest companies and corporations from 12 sectors: finance, energy, construction, manufacturing, industry, telecommunications, information, services, and consumer goods. However, the latter are few in the total number of index members and amount to 1.5-2%. A key role in the value of the Hong Kong Stock Exchange index is played by the leaders of the world credit system. The selection of the members that make up Hong Kong 50 Index is carried out by the Advisory Board with the assistance of external consultants. In order to be among the the "blue chips" companies and corporations must meet the following requirements:
- - enter the number of share issuers with the maximum value
- - be among the leaders of the Hong Kong Stock Exchange
- - be in the listing of Hong Kong index 50 for not less than two years.
A distinctive feature of Hong Kong 50 index is a high degree of speculation, which allows making profit on it with even with a relatively small investment. Accordingly, the index is especially attractive for the stockbrokers, who adopt strategies with high volumes and short rates.