A stock index is a group of stocks that can be bought or sold as a single tradable instrument.
Now, some traders speculate on how the price of a single asset changes however, some choose to
speculate with Stock Indices. As a group, stock indices can be used to indicate the health of an
industry or even a country.
Classifying stock indices, however, is a little more complex. Some indices, like the DAX 30 for
example, is a group of the 30 top-performing companies in Germany. Classified as a
‘national stock index’ it gives an indication of the health of the German stock
market.
However, stock indices aren’t only comprised of stocks that are grouped together because
of their geographical location. Some stock indices represent and track the performance of
certain sectors of the market. For example, the Nasdaq 100 index, tracks the performance of all
the companies listed on the Nasdaq exchange. Generally being technology-related firms, the
Nasdaq gives an indication of the health of the technology sector in the US!
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| Symbol | Average Spread (pips | Spread As Low As (pips) | Max Leverage |
|---|---|---|---|
Australian Securities Exchange |
2.90 | 2.50 | 1:100 |
China |
7.50 | 7.30 | 1:100 |
French |
3.50 | 3.10 | 1:100 |
Spain |
5.50 | 5.10 | 1:100 |
Hong Kong |
0.4 | 0.8 | 1:100 |
Japan Nikkei |
0.14 | 0.7 | 1:100 |
Nasdaq 100 |
0.70 | 0.65 | 1:100 |
Standard and Poor's 500 |
0.45 | 0.30 | 1:100 |
FTSE 100 index |
9.50 | 9.10 | 1:100 |
Russell |
1.30 | 1.10 | 1:100 |
Dow Jones Industrial Average |
5.40 | 5.80 | 1:100 |
U.S. Dollar Index |
0.20 | 0.50 | 1:100 |
Germany |
4.80 | 4.40 | 1:100 |
As stock indices are made up of groups of firms, there are a number of different factors that
affect the price of the index. In very simple terms, if the stocks that make up an index
go up in value, then the price of the index
will increase, and vice versa.
Traders that speculate with stock indices are able to decide if an index will increase or
decrease in value based on market sentiment.
The price movement of an index is likely to be much smoother than other financial
instruments, as one individual stock can’t bring about a huge spike in price. However,
there is significant volatility in stock indices as they can reflect broad political and
economic shifts.
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