The indices trading system is in many ways similar to the other Spread Bet and CFD products. They are comprised of individual stocks, and the trading positions are adopted by traders based on the speculation regarding the upward or downward movement of indices. And just as it is with the stock system, the actual aim is to either sell off the stocks at a price higher than the rates at which the traders bought them, or to buy stocks back at a much lower price at which the stocks had been sold originally by the trader. In order to determine the present level of the index, each and every stock listed needs to be taken into account. The rise or fall in the level of an index depends to a great extent on the weaknesses or strength of the stocks which it is comprised of.
A majority of indices consist of a number of stocks which are of various kinds. As a result, the level of volatility is considerably high (since the share prices are constantly moving). For the same reason, however, it is very seldom that indices are seen to move by a couple of percentage points every day. After all, it’s highly unlikely that every single stock in an index would experience uniform levels of indices movement at the same time, and in the same direction.
Let us give an example so that this thing would be easier to understand. For example, say that Trader A takes a position on the NYSE. If the stock exchange is presently trading at a level of 6949:6950, which indicates that spread is currently at one point in terms of value. Now suppose that a trader decides to sell off $10 worth of NYSE, precisely at this point. If that were to happen, the trader would garner a profit of $50. If the trader’s trade value was at a negative (say -$50), then the first index movement in favour of the trader would make the value stand at 0. That would be a point where there would be neither a profit nor a loss, and would first come into an equal footing point. From here on if the points show movement in the positive direction, then the trader would gain; if the movements are negative, the trader would slide back to negative.
So, it should be clear from all the above details that just like other types of trading (for e.g. currency trading, commodity trading or CFD trading), the index-based trading system is also quite dicey. That is to say that the results can go either ways. One stands to win as much as they stand to lose, by trading in the indices trading market. One thing is very clear: Since markets like these are volatile and uncertain terrains, it is always a wise thing to not put in too much capital on one particular trading position, and try to trade within the spreads as much as possible. Risks should be taken only after great calculation; and people should only use the risk capital in cases where the positions have a chance of being particularly precarious.
There are currently 1 users browsing this thread. (0 members and 1 guests)