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Index trading overview
Index trading is a relatively new and interesting way to invest in financial markets. An index’s price is composed of prices of many tradable instruments, although some components may have bigger impact on the final price. This means that when trading an index, you are, in fact, investing in a basket of instruments, rather than in the price of a specific share or commodity.
Index trading enables people to invest in a specific sector of the economy, as well as to hedge against risks. Since indices are composed of many instruments (all of which can affect the price), traders can benefit from information, as well as from receiving updates regarding the specific economy and sector related to the index. At Vestle, you can invest in financial CFD instruments that track the indices’ performance.
Trading indices in the form of CFDs
CFD stands for Contracts For Difference. When you trade an index CFD, you are not actually buying the specific index, but investing in its price. You can, for example, trade the US 500, a CFD instrument which is based on the performance of the S&P 500, or the Germany 30 – a CFD instrument which is based on the performance of the German Dax 30.
Vestle offers many indices from different regions, allowing for portfolio diversification. Most of them are composed of shares, but there are some exceptions. For example, the VIX, also known as ‘the fear gauge’, measures the implied volatility of the S&P 500, and you can trade it at Vestle in the form of CFDs.
Short trading vs. long trading
When you trade indices in the form of CFDs, you can open trades regardless of whether you expect the price to increase or decrease. Think the price will decrease? Open a ‘Sell’ (short) position. Think the price will increase? Open a ‘Buy’ (long) position.
Opening an index CFD deal with Vestle
Thanks to the Vestle trading platforms, you can trade anytime, anywhere, via PC, smartphone or tablet. Want to open a new deal? Follow these steps:
- Choose an index CFD
- Set your deal size
- Choose direction (Buy or Sell)
- Open your deal
Remember: You can always choose to set automatic limit orders such as Take Profit and Stop Loss. This gives you the option to predetermine your exit points and better manage your deals.
For your convenience, our trading platform is equipped with many useful trading tools and information. Economic Calendars, Live Rates and market indicators are all available alongside numerous education resources.
Factors that could affect index prices include:
- Earnings reports and announcements
- Politics & geopolitics
- Changes in taxation
- Interest rate decisions
- Consumer preferences
- Natural disasters
- Technological advancements
Leveraged index trading
Leverage is a trading tool that is often used by CFD traders. It allows you to increase your trading power, as well as risks.
Want an example? Take a look:
With a €500 investment, you can open deals worth up to €10,000, using leverage of 20:1.
As you can see, leverage allows you to open large deals with a relatively small investment, but because it is also a risky trading tool, be sure to use it with sufficient knowledge, understanding and training.