Indices are great for traders looking to double down on a specific market or a niche in the trading sector. Since indices measure the performance of a group of stocks, they are one of the most reliable ways to gauge market performance. For traders looking to trade indices online, nothing else offers the same plethora of advantages that indices do. Here are some key benefits of trading indices:
- They Are Not Manipulable: Indices are probably some of the few financial instruments that are not easily manipulable in the Australian stock exchange. And the answer’s simple too! No one buys an index. No matter how many dollars one puts into buying an index, the algorithm will always find a way to autocorrect the prices. So what makes the index prices go up? Well, since indices are a measure of the performance of top companies in Australia, the only thing that can make the price go up is if the share prices do. Hence, no one can manipulate index prices and dupe investors of their money. This makes them one of the safest financial instruments to trade with.
- They Are Great For Diversifying The Portfolio: When a trader buys an index, they’re not buying a single stock but rather a basket of performing stocks of different companies. Depending on the index it can be of 50, 100 or 200 companies. Being on the lower side of the risk spectrum, the chances of index prices plummeting are very rare. If it does, it’ll only be a once in a lifetime event. The same goes in the event of a company getting bankrupt. If it’s a single stock, it’ll differ greatly and traders will invite heavy losses. If it’s an index, assuming the last company in the index went bankrupt, it’ll be instantly replaced by the next performing company in Australia.
- Indices Are A Great Way Of Analysing The Global Financial Situation: Since indices track the performance of 50 or 100 companies, they are great for tracking the global market performance, inflation and other things. Traders looking to trade indices online can benefit from an instrument that can fairly predict Australia’s market performance and how it reacted to certain economic changes or corrections in the past.
- It Is Ethical: Something that is not often talked about is that indices trading is ethical. There’s no impact on share prices, no impact on employees or other economic factors.
- Only One Account Required: Investors and traders can get access to multiple indices using only one account.
- Less Capital Required: Buying 1 lot or indices requires way less capital compared to buying individual stocks or currencies.
How Are Indices Advantageous When Compared To Stocks?
Indices traders enjoy high leverage factors with small capital, something that stocks don’t always offer. Plus, good volatility is also a huge plus which is why they are highly sought after by many Australian traders and rookie investors.
What About Over Currency Trading?
Most indices that perform well in the Australian market are way better than most global currency trends. Since indices are moved by economic growth, they are more prone to rise in value compared to currencies. Moreover, indices involve fewer consolidations which means better odds of making a profit. Being a simple financial instrument that doesn’t work on complex modelling, they are easy to work with to predict changes and trends. Since they are more local, they are more ideal to give accurate predictions too. Not to mention how the supply or demand of currencies are based on speculation alone unlike the market trends or factors in economic development in the case of indices.