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A Guide to Stock Indices - FXTM
Delve into the world of stock indices, including the benefits of trading them as CFDs and the most effective strategies.
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Why is trading Indices so popular?
For many people who prefer to trade on a market’s price action rather than buying, selling and trading in individual assets of that market, stock indices have become a popular choice. Like forex and stocks, FXTM offers stock index trading in the form of CFDs.
Which one should you choose? Do stock indices offer better conditions than forex or stock CFDs? Here’s a summarised point-to-point comparison of these instruments from FXTM’s perspective:
| Stock CFDs | Indices | Forex | |
|---|---|---|---|
| Volatility | The most volatile | More volatile than major forex pairs | FX majors are often less volatile than stocks or indices |
| Leverage | Fixed leverage 1:10 for US Shares and 1:3 for European Shares | Fixed leverage depending on the index | Floating from 1:2000 to 1:25 for Majors |
| Liquidity | Quality stocks have high liquidity | Major indices have high liquidity | FX majors have the highest liquidity of the three |
| Products | FXTM offers hundreds of major US and EU stock CFDs, see the full list here. | We offer a wide variety of popular indices, including the SPX500_m and the WSt30_m. See the full list here. | FXTM offers over 60 currency pairs, including EURUSD with spreads as low as zero. See the full list here. |
| Platform | MetaTrader 4 (MT4) | MetaTrader 4 (MT4) & MetaTrader 5 (MT5) | MetaTrader 4 (MT4) & MetaTrader 5 (MT5) |
Types of Indices
The types of indices include commodity, stock, and bond indices. Commodity indices consist of baskets of commodities such as raw materials, precious metals, or agricultural products.
Bond indices are composed of various bonds from the bond markets. A bond represents a unit of corporate or government debt. Bond and commodities indices are not currently offered by FXTM.
Synthetic indices are based on simulated markets, more popularly known as baskets. While they behave like a real financial market, their price movements are created from the use of randomly generated numbers via a secure computer broker.
No broker has any control over these numbers, and therefore no influence over the market’s ‘behaviour’. One example of a stock basket is the Social Media Index.
Stock indices are the most popular and actively traded, however, because they consist of a basket of stocks from top companies traded on a particular stock exchange. For instance, the FTSE 100 index (or UK 100) is composed of 100 of the largest firms on the London Stock Exchange.
Indices don't have any intrinsic value, and do not signify a share of ownership in a company.
Weighting of Indices
Two main methods exist for calculating the index value. They are referred to as index weighting schemes.
Traditional share dealing has existed for Price-weighted Indices
The index price is calculated by taking into account the price per share of each stock in the index. Each stock contributes a fraction to the overall value of the index. Higher priced shares, therefore, have greater weight in price-weighted indices.
Capitalisation-weighted Indices
In this scheme, individual items in the index are weighted based on their market capitalisation. For instance, if a company has a higher market capitalisation (the company’s worth based on its outstanding shares), the value of its shares will contribute more to the index value than more expensive shares from companies with fewer market caps.
FXTM Stock Indices Trading
FXTM is a leading forex broker that provides opportunities for stock indices trading. We have gathered all the popular stock portfolios from the leading stock exchanges. Other advantages of trading on FXTM include:
How to Trade Indices
There are various ways to trade and invest in financial indices. You may invest in exchange-traded funds (ETFs), index futures, or index options. Investors receive dividends from index mutual funds and ETFs.
The challenge of investing in index funds or ETFs for a retail trader is the high minimum investment amount required by some brokers. There are also management fees to be paid.
The quickest way to get started with indices trading is through trading contracts for difference (CFDs), which is what FXTM offers.
You will not own the underlying assets, and there are no dividend payouts. CFDs allow retail traders to speculate on the price movement of indices. Trades take place on the spot index market, which offers a comparable experience to trading forex pairs.
What are the Most Traded Indices?
Traders are drawn to indices that have the most trading volume and higher volatility, so they can profit from the price swings. Stock market indices are fundamentally made up of shares from blue-chip companies or firms with the highest market capitalisation.
With FXTM, you can trade stock indices from around the world. They have high volumes and are closely analysed, which means that you can find economic news releases associated with them.
Stock Indices
| Symbols & Names | Description |
|---|---|
| S&P/ASX 200, XJOm, AUS200, or Australia 200 | Computed since 2007, the AUS200 contains a basket of stocks from the top 200 companies on the Australian Stock Exchange. |
| FCHI40, CAC 40, or France 40 | The CAC 40 tracks 40 of the most significant securities listed on the Euronext Paris. This index indicates the health of the Paris stock market and follows a cap-weighted scheme. |
| SMI or Social Media Index | It tracks the performance of a basket of stocks from social media companies. |
| GHSI50, HS50, or Hong Kong 50 | Constituents include the top companies from Hong Kong’s stock exchange. It’s one of the major stocks indices in Asia and is cap-weighted. |
| Jap225, Nikkei 225, N225, NIK, or Japan 225 | It’s composed of 225 large Japanese blue-chip companies and serves as the top indicator of the Japanese stock market. It’s price-weighted. |
| NQ100_m | It’s the mini index futures CFD option of the NASDAQ-100 Index that includes 100 non-financial companies in sectors such as technology, telecom, and biotech. |
| S&P 500 Mini, E-Mini S&P 500 Future or US SPX 500 (Mini) | It’s based on the S&P 500. The index is traded on the Chicago Mercantile. One E-mini represents ⅕ of the cost of a standard S&P contract. |
| SPN35, IBEX 35, or Spain 35 | The index acts as a benchmark for Spain's main stock exchange. It follows a capitalisation-weighted scheme and includes 35 of the top publicly traded companies. |
| STOXX 50, STOXX Europe 50, EURO Stoxx50, or Europe 50 | It’s composed of Eurozone stocks from 9 countries but is mainly dominated by French and German companies. Stocks featured are of blue-chip market leaders in key sub-sectors. |
| UK 100, ‘Footsie’ or FTSE 100 Index | The cap-weighted index includes shares of 100 large companies featured on the London Stock Exchange. It reflects more than 80 percent of the UK's market capitalisation and is the most regarded benchmark. The FTSE 100 is one of the most popular indices to trade. |
| US 30 mini or Wall Street 30 (Mini) | It’s a mini index option of the Wall Street 30 Index that tracks 30 of the largest publicly-traded corporations in the US. |
FXTM currently offers The Social Media Index, The Space Wars Index, The Green Index, Mobile Index and Vegan Index
| The Social Media Index | Contains stock prices from the world’s biggest social media companies; Facebook, Twitter, Snapchat and Google. |
| The Space Wars Index | Contains stock prices from the world’s biggest aerospace companies, including Boeing, Lockheed Martin, Viasat and more. |
| The Mobile Index | Contains stock prices from the world’s biggest telecommunication companies; Apple, Qualcomm, Crown Castle Int., T-Mobile US and more. |
| The Green Index | GDAXIm, DAX, or Germany 30 (Mini) The DAX conContains stock prices from some of the world’s biggest environmentally-friendly companies, including Tesla, Beyond Meat, Bloom Energy and Weyerhaeuser. |
| The Vegan Index | Contains stock prices from some of the biggest names in the agriculture industry, including Beyond Meat, Archer-Daniels and Ingredion Incorporated. |
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FXTM Account Types that offer Stock Indices
To see which FXTM account types offer index trading, have a look through their pricing comparison, and click on the account name for more information on other trading conditions.
| Advantage | Advantage Plus | |
|---|---|---|
| Minimum Deposit | $/€/£ 200 | $/€/£ 200 |
| Commission | $2 per lot (as low as $0.40 per lot depending on trading volume and equity) | None |
| Spreads* | From 0.1 | From 1.5 |
*Spreads are floating and they may increase during specific periods of the day depending on the market conditions. They also vary depending on the index you’re trading, so it’s best to always check the contract specifications of the particular index you’re interested in.
FREQUENTLY ASKED QUESTIONS
The best way to analyse a stock market index is to incorporate fundamental, sentimental, and technical analysis. Traders should factor in the key economic releases that affect the stock market. Global events such as the COVID-19 pandemic should be considered.
Announcements on key decisions of companies in an index may also have repercussions on the index value. For instance, the 5th Apple stock split (where 1 share was split into 4 shares) impacted the Dow Jones Industrial Average that’s based on price–weighting. The share price of Apple fell from $500 to $125.
FXTM offer a superior indices trading experience. We have many technical analysis tools and indicators available which can help you to generate precise index trading signals.
Our economic calendar will keep you updated with major economic events so you can leverage fundamental analysis. Updates from our market analysis team will also help you uncover trading opportunities.
By taking advantage of our demo trading accounts, you can develop your own indices trading system. Traders also have access to an advanced strategy tester via the MetaTrader 5 platform. It allows you to test the performance of traditional trading robots (Expert Advisors). This helps you pinpoint the actual performance of various index trading systems.
We have also curated additional MT4 forex trading indicators that you can download. Our traders access high-quality educational resources such as webinars presented by industry experts.