What are indices and how do you trade them?
Indices measure the performance of a group of stocks. Discover everything you need to know about stock indices, including how to trade them and which markets are available to you.
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Start trading today. Call +35 318 009 95362 or email newaccounts.uk@ig.com. We’re here 24 hours a day, from 8am Saturday to 10pm Friday.
Contact us: +35 318 009 95362
Start trading today. Call +35 318 009 95362 or email newaccounts.uk@ig.com. We’re here 24 hours a day, from 8am Saturday to 10pm Friday.
Contact us: +35 318 009 95362
What are indices?
Indices are a measurement of the price performance of a group of shares from an exchange. For example, the FTSE 100 tracks the 100 largest companies on the London Stock Exchange. Trading indices enables you to get exposure to an entire economy or sector at once, while only having to open a single position.
You can speculate on the price of indices rising or falling without taking ownership of the underlying asset with our Turbo24 offering, spread bets, CFDs, vanilla options and barriers. Indices are a highly liquid market to trade, and with more trading hours than most other markets, you can receive longer exposure to potential opportunities.
How are stock market indices calculated?
Most stock market indices are calculated according to the market capitalisation of their component companies. This method gives greater weighting to larger cap companies, which means their performance will affect an index’s value more than lower cap companies.
However, some popular indices – including the Dow Jones Industrial Average (DJIA) – are price-weighted. This method gives greater weighting to companies with higher share prices, meaning that changes in their values will have a greater effect on the current price of an index.
What are the most traded indices?
- DJIA (Wall Street) – measures the value of the 30 largest blue-chip stocks in the US
- DAX (Germany 40) – tracks the performance of the 30 largest companies listed on the Frankfurt Stock Exchange
- NASDAQ 100 (US Tech 100)– reports the market value of the 100 largest non-financial companies in the US
- FTSE100 – measures the performance of 100 blue-chip companies listed on the London Stock Exchange
- S&P 500 (US 500) – tracks the value of 500 large cap companies in the US
How to identify what moves an index’s price
An index’s price can be affected by a range of factors, including:
- Economic news – investor sentiment, central bank announcements, payroll reports or other economic events can affect underlying volatility, which can cause an index’s price to move
- Company financial results – individual company profits and losses will cause share prices to increase or decrease, which can affect an index’s price
- Company announcements – changes to company leadership or possible mergers will likely affect share prices, which can have either a positive or negative effect on an index’s price
- Changes to an index’s composition – weighted indices can see their prices shift when companies are added or removed, as traders adjust their positions to account for the new composition
- Commodity prices – various commodities will affect different indices’ prices. For example, 15% of the shares listed on the FTSE 100 are commodity stocks, which means any fluctuations in the commodity market could affect the index’s price
Why trade indices?
By using indices as a trading vehicle, you can:
- Get immediate exposure to an entire index
- Go long or short
- Trade with leverage
- Hedge your existing positions
Get immediate exposure to an entire index
A primary advantage of trading indices using derivatives like turbo warrants, spread bets, CFDs, vanilla options and barriers is the sheer breadth of market exposure accessed in a single position.
Indices, as a representation of an entire stock market or industry, measure the overall performance of all stocks included within the index. For example, let’s say a notable event occurs that affects the FTSE 100 as a whole rather than just a few specific companies. By taking a position on an index, you trade on how the incident will impact a wide cross-section of the most important stocks in an economy or sector.
To gain a similar level of exposure through traditional investments, you’d have to incur the time and monetary costs of purchasing the individuals stocks making up the index or invest in an exchange traded fund (ETF). Simply put, an index is an immediate and direct way to trade on the movements of the total market.
Note that trading indices on leverage comes with a high risk, as profits and losses are amplified. Always take steps to mitigate your trading risk.
Go long or short on an entire index
When index trading with Turbo24, spread bets, CFDs, vanilla options and barriers, you can go long or short. Going long means you’re buying a market because you expect the price to rise while going short means you’re selling because you expect the price to fall.
With all our ways to trade, your profit or loss is determined by the accuracy of your prediction and the overall size of the market movement.
Trade with leverage
Turbo24, spread bets, CFDs, vanilla options and barriers are all leveraged products. This means you only need to commit an initial premium – or deposit known as margin in the case of spread bets and CFDs – to open a position that gives you much larger market exposure.
However, whereas your maximum loss on Turbo24 and barriers is limited to your initial premium, when trading leveraged spread bets and CFDs, your losses could exceed your margin deposit. This means that while leverage can magnify profits, it can also amplify losses.
Before trading, you should always consider whether you understand how leveraged instruments work and whether you can afford to take the high risk of losing your money.
Hedge your existing positions
An investor with a collection of different shares might short an index to protect themselves from losses in their portfolio. If the market enters a downturn and their shares start to lose value, the short position on the index will increase in value – offsetting the losses from the stocks. However, if the stocks increased in value, the short index position would offset a proportion of the profits made.
If you had a current short position on several individual stocks which feature on an index, you could hedge against the risk of any price increases with a long position on that index. If the index rises, your index position will earn a profit, counteracting a proportion of the losses on your short stock positions.
Choose how to trade indices
With us, you can use Turbo24, spread bets, CFDs, vanilla options and barriers to trade on indices. All of these products are financial derivatives, which means you can use them to speculate on indices that are rising in value, as well as falling.
Turbo24
Our Turbo24 offering consists of exchange-listed turbo warrants that can be traded 24/5.1 When taking a position, you choose your maximum risk and leverage levels. Turbo24 warrants are traded on several major global indices.
Spread bets
Spread bets are derivatives used to bet on the price of an underlying asset without taking ownership of it. Profits and losses are calculated per point of movement in the underlying.
CFDs
CFDs are a contract between two parties to exchange the difference in price from the point at which the contract is opened, to the point at which it’s closed. We offer undated, cash CFDs for short-term positions, and CFD futures for longer term views.2
Vanilla options
Vanilla options are structured in the same way as traditional options, and you can buy and sell both call and put options depending on whether you think the market will rise or fall. All our vanilla options are cash settled.
Barriers
When trading our barriers, or barrier options, you set a ‘barrier’ or market level at which your position is automatically terminated – this means that you’re in control of your maximum losses should the market turn against you.3 Our barriers move one-to-one with the underlying market.
| Turbo24 | Spread bets | CFDs | Barriers | |
| Main benefits | A unique, 24/5 on-venue security,1 with an adjustable knock-out level, variable leverage and zero commission. | Speculate on rising an falling prices without taking ownership of assets – bet an amount of money per point of movement. | Go long or short. Cash CFDs enjoy tight spreads while CFD futures don’t incur an overnight fee.2 | Similar to Turbo24 – adjustable knock-out level and variable leverage – but you’ll trade over-the-counter with us.3 |
| Tradable in | Turbo | € per point | Contracts | Contracts |
| Risks | All trading and investing puts your capital at risk. You should consider whether you can afford to take the high risk of losses. | Spread bets are complex instruments and come with a high risk of losing money rapidly due to leverage | CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. | Markets can be volatile, which means that losses can accrue quickly. Past performance is no guarantee of future results. |
| Risk management | A knock-out level guarantees your maximum risk is limited to the upfront consideration payment. | Choose an automatic stop-loss level to limit potential losses. Negative balance protection further limits potential losses.* | Choose an automatic stop-loss level to limit potential losses. Negative balance protection further limits potential losses.* | Your chosen barrier level ensures maximum risk is limited to the upfront premium payment. |
| Expires | Undated, exchange-listed turbo warrants | Undated | Undated and CFD futures | Dated, but suited to short-term positions as barriers incur an overnight funding fee |
| Accesible to | All clients | All clients | All clients | All clients |
| Commission | Commission-free | Commision-free | Commision-free | 0.1 units per contract |
| Platforms | Web platform and mobile trading app | Web platform, mobile trading app and MT4 | Web platform, mobile trading app and MT4 | Web platform and mobile trading app |
| Learn more | Learn more | Learn more | Learn more |
*Negative balance protection applies to retail clients only
Create an account and log in
To start trading indices with Turbo24, spread bets, CFDs, vanilla options or barriers, open an account. We’re a FTSE 250 company with over 45 years’ experience. Enjoy access to the world’s first 24-hour turbo warrant, gain exposure to unique trading opportunities on several 24-hour indices, and benefit from our deep liquidity and low spreads.
Select the index you want to trade on
It’s important to choose an index that’s best-suited to your trading style. This will depend on your individual appetite for risk, available capital and whether you prefer taking short-term or long-term positions.
For example, the Germany 40 is usually a volatile index which is favoured by traders with high risk appetites and who prefer short-term trading. On the other hand, the US 500 is largely known for its steady returns over time, making it a favourite with traders with lower appetites for risk and a long-term outlook.
We offer a wide selection of index markets on both major and minor global indices,4 meaning that you’re more likely to find a market that fits your individual trading style.
Decide whether to go long or short
Going long means that you’re speculating on the value of an index increasing, and going short means that you’re speculating on its value decreasing.
If the economic outlook for an economy or sector looks good based on the performance of the companies on an index, a long position could help you realise a profit if the index increased in value.
If the outlook is poor – possibly because large companies on a capitalisation-weighted index are underperforming – you might want to go short on the expectation that the index will fall in value.
Please note, however, that all trading incurs risk and that past results are never a guarantee of future results.
Set your stops and limits
Stops and limits are essential tools for managing your risk while trading indices. A stop order will close your position automatically if it goes to a less favourable level than the current market price, while a limit order will close your position automatically if it goes to a more favourable market price.
Normal stops are free of charge but there is no guaranteed protection against slippage – so your position could be closed out at a worse level if the market gaps. A guaranteed stop will always close out your position at exactly the price you’ve specified, but they do incur a fee if triggered.
Open and monitor your trade
When you think you’re ready to start indices trading, it’s time to open your trade. Log in to our trading platform, choose your way to trade – Turbo24, spread bets, CFDs or options – and go to the market you want to take a position on. Open a long position (‘buy’) if you think the index will increase, or go short (‘sell’) if you believe it will fall.
Turbo24
For Turbo24, select a turbo warrant with your preferred automatic termination level, set your trade size and confirm your order.
Spread bets
For spread bets, you can decide whether to go long or short and how much capital you’re going to stake per point of movement in the underlying market. You’ll also need to choose your bet size to determine your margin. Lastly, put your risk management tools in place and open your position.
Cash CFDs and CFD futures
For CFDs, choose between cash and futures. Pick your favoured contract amount – for example, €1, €5 or €25 per point – and select ‘buy’ if you’re going long or ‘sell’ if you’re going short. Set the number of contracts you’d like to trade, enter a stop-loss and limit, and open your position.
Vanilla options and barriers
For vanilla options, decide whether you’re buying or selling a call or put, choose your expiry date and strike price, set your trade size and open your position. For barriers, decide if you’re going long or short, set your barrier level, select the number of barriers you’d like to trade and open your trade.
Monitor your position, and close your trade when you want to take a profit or cut a loss.
FAQs
What does indices trading mean?
Indices trading means that you are taking a position on a stock index – which is measure of the performance of several different companies. Indices trading can be a way to get exposure to an entire sector or economy at once, without having to open positions on lots of different shares.
Can I profit from index trading and what are the risks?
You can profit from index trading by accurately predicting an index’s price movements. For example, if you think the Germany 40 will rise, you would open a long position. But, if you think it will fall, you would open a short position. Your profit or loss is determined by the extent to which your forecast is correct.
If you decide to trade on indices with our products, please note that all leveraged derivatives are complex instruments and come with a high risk of losing money rapidly.
For example, when selling vanilla options you risk potentially unlimited losses if the market moves against your position because there’s no cap on how high something’s price can theoretically rise. Before trading, you should always consider whether you understand how the instruments work and whether you can afford to take the high risk of losing your money.
What does it mean to buy index futures?
To buy index futures means that you are opening a long position on an index because you think the price will increase. If you are correct in your forecast, you will profit, but if you are incorrect, you will incur a loss.
Are index futures derivatives?
Index futures are a financial derivative. Their price is based on the price in an underlying market, which is influenced by supply, demand and volatility. You can speculate on index futures with spread bets or CFDs, and they will be traded at the futures price – meaning that you won’t incur overnight funding charges. You can also take a long-term position using our options markets.
How can risk be hedged with stock index futures?
You can hedge risk with index futures by taking a position that will turn to profit if one or more of your existing positions starts to lose money. For example, if you held long positions on a selection of US tech stocks, you could open a short position on the US Tech 100 to offset any losses you might incur from the shares declining in value.
Alternatively, if you held short positions on a collection of large-cap German shares, you could open a long position on a Germany 40 index future to protect yourself against any possible increases in the price of the underlying shares.
Can I sell futures before expiry?
You can sell futures before expiry, and many traders will exit their positions before the expiry date arrives. To do so, you can sell your contract outright or purchase an opposing contract which cancels out your current position.
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1 The Turbo24 trading week will commence on a Sunday Evening at 23.00 CE(S)T, offering continuous trading (less two-minute closures for security maintenance every 23.00 to 23.02 CE(S)T) until its conclusion at 23.00 CE(S)T on a Friday evening.
2 An overnight funding fee is payable if Turbo24, Barrier or Spot CFD contracts, and spread bets remain open after 11:00 PM CET. With Turbo24 this is reflected as a small movement in the knock-out level - you no longer pay, but it does affect your return. For barriers, spread bets and CFDs, we will adjust your deposits to take into account the cost of financing your position. See how to calculate the overnight funding fee.
3 A premium is charged if your guaranteed stop is triggered. The potential premium is displayed on the deal ticket, and can form part of your margin when you attach the stop. Please note that premiums are subject to change, especially going into weekends and during volatile market conditions.
4 We offer 81 index markets for spread betting and CFD trading and numerous indices for trading using options or Turbo24.
