What is Trading Index?
In financial markets, an index is a list of stocks traded on an exchange. According to Investopedia, the calculation of the index value comes from the prices of the underlying holdings. Thus, when the price of index shares changes, the index value will also change. When many stock prices go down, the Index value will also go down, and vice versa. If the performance of company stocks in a good index, the index value will increase.
By utilizing the volatility that appears on the index price, you can buy and sell indexes trading for profit. As in the forex market, index trading allows you to make profits by estimating index price movements.
Buy and Sell Index
To be able to buy and sell indexes, you need to register yourself with a broker that has Index trading facilities.
On index transactions, you can place sell or buy positions against index price movements. Thus, you can make a profit in any market conditions, whether it is rising or falling.
For example, if you want to trade Hong Kong’s Hang Seng index at 25,050, then you have two options to open BUY or SELL positions. It depends on the amount of spread you use, the broker will offer a bid/offer at a certain number such as 25,049 / 25,051.
In one day, the Hang Seng index can move between 300 – 700 pips, with a price per pip of $ 5. If you open a buy position at the level of 25,050 and then close it when the index price rises to 25,250. Then, the potential profit you get is ((25,250 – 25,050) * 5) = $ 1,000.
