Benefits of index trading

Leverage

Indices are traded on margin, typically 5%, which is quite often referred to as 20:1 leverage. Trading on margin can be a more efficient use of your capital because you only have to allocate a very small proportion of the value of your position to secure a trade, while maintaining full exposure to the market. In effect, you are increasing your profit potential. Please note that your losses can also be increased. For example, with $100 as initial margin, you could open up a $20,000 index trading position using our maximum leverage. Remember that markets can move against you though, and losses can exceed your initial deposit.

24-hour market

Many of our most popular indices are available for trading 24 hrs hours a day, even when the underlying market is closed. For example, when the UK stock market closes at 4.30pm (GMT), our UK 100 index will continue trading all through the night, giving you the opportunity to profit on price movements even in the early hours of the morning. Unlike many other financial markets, investors can respond to index fluctuations caused by economic, political and social events as they occur, in most parts of the world, without having to wait for markets to open. Indices offer price volatility 24 hours a day so, no matter what type of trader you are, from intraday, end-of-day or end-of-work-day, you have numerous trading opportunities.

Liquidity

Major global indices are one of the most heavily traded asset types in the world, with a huge daily average turnover. With so many market participants trading over 24 hours, indices are more liquid than almost any other financial market, next to Foreign Exchange.

So, if you trade an index, whether it is for a $1,000 trade or a $10,000 trade, you will typically receive the same quoted price, which may not be the case in less liquid markets, such as the share market.

No one is in control

Major indices are so large and heavily traded that they are beyond the financial control of any individual participant. Even governments, who may intervene heavily to influence the short-term direction of their economy through methods such as quantitative easing, will not find it an easy task to control the underlying trend if it’s already fiercely negative.