The Advantages And Drawbacks of Trading With Indices
All who trade fixed time trade will be provided with the opportunity to trade with a number of different indexes. The same as all asset groups, there will be both advantages and disadvantages to taken into consideration. Although no group is better than others, traders do tend to have preferences based upon the level of profits that each provides them with. Read on to learn the ins and outs of trading with indices.
Each broker is responsible for providing their own unique list of assets which can be used for trading. Indices will be one of the groups made available, and this group should contain no less than ten indexes to choose from. Ideally, there will be 15 to 20 (or more) to select from. Should you plan to trade with this asset group, it would be wise to not settle for any number less than 10. The major global markets should be well-represented, along with at least a few of the smaller markets.
Among the primary advantages of trading with an index, particularly a major one, is that prices tend to always be on the move while trading is taking place. Increased movement often makes for easier forecasting of direction, which will certainly help when trading fixed time trade. Although an index is composed of many different components, the market as a whole will be impacted by country-specific economic data releases. This information can also make forecasting easier.
Indices are prone to trending, and trends tend to make for easy profits. There are a large number of events that can send the price of an index climbing or falling, and either type of trend can be profitable. Although technical analysis should not be ignored, it is often easy to determine the upcoming general direction of movement simply by reading market news. Not a day goes by in which indices are not reported on. Any major financial news site will provide you with the latest information in regard to how and why prices are moving as they are.
One of the disadvantages of note will be the limitation of trading hours. All markets will have an open and closing time, and while it may be easy to trade within these hours along with an index in your home country, it may not be easy to trade with one in a different country. The U.S. markets are an excellent example. Many traders want to trade with the Dow, Nasdaq, or S&P 500, but find that these markets are open during hours when they are working or sleeping. The only option may be to trade with Futures trades rather than current price movement.
Another potential disadvantage would be the fact that all index components need to be accounted for when trading. Some components will have a larger impact on the overall value than others, and when these rise of fall in value, the index is likely to as well unless it is able to find support elsewhere. This is not to say that you’ll need to analyze the price action of every component of an index, but there will be the need to be on the lookout for any major changes in prices.
It is not uncommon for new traders to ignore indices initially, opting instead for more popular asset groups. While this is fine when first starting out, this group should not be overlooked indefinitely. The profit potential provided by indices is massive, and with just a little experience in the areas of technical and fundamental analysis, these profits can be yours.
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