Index trading is a trading method that does not need to analyze the performance of individual companies to gain global/regional market shares. Popular stock market indexes usually provide traders with higher liquidity, longer trading hours and smaller spreads.
One of the simplest and most popular index trading methods is Contracts for Difference (CFD). A contract for difference (CFD) is a contract between a trader and a broker that aims to profit from the price difference between opening and closing positions.
Using index CFDs, you can go long or short the market without traditional exchanges and trade directly with CFD brokers. Whether you are bullish or bearish on the index, you can try to profit from rising or falling price changes.
The index is a combination of a variety of mobile trading tools and is welcomed by the majority of CFD traders around the world.
How are the main indexes derived?
Before the advent of the digital age, the index was obtained by simply calculating the average value, which is the quotient of the sum of the stock prices of all constituent companies and the number of companies. Today, this method seems too simple, but it meets the requirements of the time and effectively reflects the strength of a specific market.
Today's index value will still change according to the fluctuations in the value of its related individual stocks. The difference is that index pricing mainly adopts the following two formulas:
1. Market value weighted index Market weighted (also known as capital weighted) index is calculated based on the total market value (capital) of its constituent companies. The larger the company, the greater the impact on the index. The indexes calculated using market-weighted indexes are: FTSE 100 and DAX 30 .
2. Price-weighted index The price-weighted index is calculated based on the stock prices of its constituent companies. Companies with higher stock prices have a greater impact on the overall index price. Indexes calculated using price-weighted indexes are the Dow Jones Industrial Average.