Stock indices
A stock index is a collection of stocks that can be traded as one single asset.
Why Traders Choose Indices Over Stocks
Instead of tracking the price movements of individual stocks, some traders prefer to work with indices. These indices are often used to assess the health of entire industries or even the economy of an entire country.
The classification of stock indices is varied and includes different types
For example, the DAX 40 index includes the shares of 40 of Germany’s largest and most profitable companies. It is a “national stock index” that serves as an indicator of the state of the German stock market. However, an index can not only represent geographically close companies, but also track the performance of specific sectors. For example, the US Tech 100 index tracks the shares of companies listed on the Nasdaq, mainly in the technology sector, and provides an indication of its current state in the United States.
Dividends on stock indices
The stocks included in the index periodically pay dividends to their shareholders, which affects the overall index value, causing it to decrease by a certain amount. We guarantee that these changes will not significantly affect your balance on open positions, thanks to dividend adjustments. In the case of a long position, your account will be credited with an amount corresponding to the additional profit, and in the case of a short position, an amount corresponding to the loss due to the dividend adjustment will be deducted.
How to trade stock indices?
Since stock indices represent a collection of companies, the price of the index depends on changes in the value of those companies. Simply put, when the stocks that make up the index rise, the index rises, and vice versa. Index traders base their predictions on whether the index will rise or fall, taking into account the overall market climate.
Index movements are generally smoother than those of individual stocks, since a single stock cannot significantly affect the value of the index. However, indices can be subject to significant fluctuations, since they reflect important political and economic changes.
When a trader expects the index to rise, the value of the stocks in the index increases, which in turn increases the index itself, and the trader makes a profit.