What are indices
Stock market indices are groups of stocks of companies grouped by various criteria, such as size, industry or region. They serve as indicators of the state of the market and allow investors to assess its overall dynamics. For example, the S&P 500 Index includes the 500 largest US companies by capitalisation, while the NASDAQ Composite Index focuses on technology companies. By analysing these indices, traders can make informed decisions about their investments based on the overall direction of the market.
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How indices are formed
Stock indices are formed by various methods, one of which is the weighted average method. This method is based on calculating the total value of all stocks included in the index and dividing this sum by the total number of securities. For example, the Dow Jones Index uses this approach to track changes in the value of stocks in the U.S. market. Other methods of index formation include market capitalisation, where each company’s weight is determined by its market value, and the price method, based on the closing prices of shares. Each of these methods has its own characteristics and can be applied depending on the specific objectives and requirements of investors.
How to trade indices
CFDs trading on indices is a unique strategy that allows investors to profit from price fluctuations without purchasing assets. By using leverage, traders can increase their potential income by investing only a small portion of the total contract value. This opens up opportunities to profit from both market rises and falls, making CFD trading on indices an attractive and effective strategy.
