trading is defined as the buying and selling of a specific stock market index.
Investors will speculate on the price of an index rising or falling which then
determines whether they will be buying or selling.
Since an
index represents the performance of a group of stocks, you will not be buying
any actual underlying stock, but rather buying the average performance of the
group of stocks. When the price of
shares for the companies within an index go up, the value of the index
increases. If the price instead falls, the value of the index will drop.
CFDs
(Contracts for Difference) have become the most popular way of trading stock
indices as they allow more flexibility and require less margin compared to
Futures contracts traded on exchanges.
The main
benefits of trading index
CFDs are that you can easily go long or short (i.e., profit from both
rising and falling prices), the relatively low margin requirements, wide range
of available indices and the fact that indices are reshuffled from time to
time, which is ensuring that they stay relevant.
When traders
think about stock indices, typically it is the most popular indices that come
to their minds, such as the NASDAQ
100, Dow Jones 30, and S&P 500. The universe of stock indices consists
of many more indices than the extremely popular U.S. indices. In this article,
we will look at three stock indices that are worth watching in the current
market environment.
Spotlight on: Nikkei
225
The Nikkei
225 futures contract is particularly popular in Japan, and famous for its
high intraday volatility, while still being highly liquid. The Nikkei 225
consists of the 225 largest and most liquid stocks traded on the Tokyo Stock
Exchange (TSE). It is the leading index for the Japanese stock market and often
seen as the Japanese version of the Dow Jones (i.e., blue chips stocks).
The higher
volatility compared to other indices from developed markets and slightly lower
correlation to them make the Nikkei 225 attractive to short-term traders.
What is
moving the price of the Nikkei 225? It could be anything from earnings reports
from the constituents to Japanese economic data releases and global events
(such as the pandemic and geopolitical tensions).
Looking at
the chart below, we can see that the Nikkei 225 crashed in March 2020 as the
pandemic started to escalate, followed by a sharp rebound and multi-month
rally. However, the bull market ended much earlier than it did in U.S. markets.
Chart: Japan
225 CFD (Source: Axi MT4)
Spotlight on: DAX 40
The DAX
40 (formerly known as DAX 30) is Germany´s most popular stock index, and
widely traded around the globe. It is a popular way for traders to gain
exposure to the German stock market – with Germany being Europe´s largest
economy.
The DAX 40
consists of 40 constituents, including some famous blue-chip names such as
Siemens, Deutsche Bank, Bayer, BMW and Mercedes-Benz Group.
High
intraday volatility, high liquidity, long trading hours and low spreads make it
a popular product for traders. The focus has increasingly switched to Europe in
recent months amid rising geopolitical tensions and the ECB moving towards its
first rate hike in a long time sooner than initially anticipated. This has led
to increased volatility in European equity markets, which has affected the DAX
40 the most.
GER40 Chart,
Source: Axi MT4
Spotlight on: ASX 200
The ASX
200 is a stock market index that consists of the top 200 Australian shares
listed on the Australian Securities Exchange (ASX). The index covers more than
80% of the entire Australian stock market by size. The S&P/ASX 200 was
launched in April 2000 and is priced in AUD (Australian Dollars).
The ASX 200
has been getting more attention from traders recently amid rising volatility.
The main reasons are concerns over an economic slowdown in China (Australia´s
biggest trading partner), rising commodity prices and increased fluctuations in
the Australian Dollar amid rising interest rates.
AUS200 Chart
– Source: Axi MT4
Stay ahead
of the markets and trade your edge with Axi.
The
information is not to be construed as a recommendation; or an offer to buy or
sell; or the solicitation of an offer to buy or sell any security, financial
product, or instrument; or to participate in any trading strategy. Readers
should seek their own advice. Reproduction or redistribution of this
information is not permitted.
