Want to gain exposure to an entire economy or sector with a single position? Indices trading is the way to go!
Indices are financial instruments that represent the price movements of a basket of stocks. Each index is from a specific country or region, facilitating a more diversified approach than individual stock trading.
But, here’s the catch: You can’t trade indices alone. Trading with a broker is necessary to gain access to the financial markets. Since index trading is a lot different than stock or Forex trading, the need for a reliable broker can’t be ignored. Here’s how you can choose the right broker for index trading:
Start With Accessibility
Before you inquire about a broker’s commission and available trading features, inquire about the leading indexes you can trade.
National indices are almost always available. They track the performance of a selection of companies listed in a specific country. Examples of national indices include:
S&P 500 – tracks the performance of 500 large-cap U.S. companies
Dow Jones Industrial Average (DJIA) – tracks 30 large, publicly-owned companies in the U.S.
Nikkei 225 – tracks the performance of 225 of the largest companies listed on the Tokyo Stock Exchange.
Nifty 50 – tracks 50 of the largest and most liquid Indian companies on the National Stock Exchange.
You can also look into sector indices, volatility indices, and currency indices.
A broker that facilitates the expansive indices trading will help you expand your portfolio and reach wider markets.
Assess the Available Trading Tools and Features
One thing is clear — precision and focus are incredibly important for making profits in index trading. This is why you should inquire about the trading tools and features a broker has to offer.
Reliable index brokers give you access to powerful and award-winning trading platforms, such as MetaTrader 4 or MetaTrader 5. This will allow you to access charts, analyse patterns, and make informed decisions.
Moreover, a broker tries to provide you with the ideal environment for trading. Many brokers allow traders to use all strategies, be it scalping, news trading, or expert advisor (EA) trading.
Ensure Robust Risk Management
As with all types of trading, index trading comes with its fair share of risks. Make sure your broker facilitates the usage of risk management tools and techniques. Examples include stop-loss orders and take-profit orders.
Risk management strategies act like protective nets. They help you acquire profits before the market moves against you.
Consider the Availability of Leverage
Leverage is the lifeline of index traders. It allows them to open a position by depositing only a fraction of the trade’s full volume. This is especially true for index CFDs as they are mainly traded on margin.
Make sure your broker has flexible leverage policies. For instance, many brokers offer a leverage of up to 1:500, giving traders maximum market exposure.
That said, always use leverage with caution. One wrong move and you can lose all your profits and trigger a margin call.