The concept of index (plural indices) in trading refers to the statistical measurement of changes in the overall performance of a certain control group formed by individual companies. Before you bombard me with rotten tomatoes and rotten eggs, let me explain it again, in normal Russian language, since the first sentence sounds strange even to me. One of the most well-known indices that is constantly traded, which is constantly talked about, is the S&P 500 (Standard & Poor’s 500). This index includes 500 large U.S. companies that are traded, and whose price is based on the stock prices of each of those companies.
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Each company has a different weight in the overall value of the index, and this weight in our case is determined by Standard & Poor (S&P). The price of the index will fluctuate in the upward and downward direction, depending on how the companies that enter it will perform, serves as a kind of indicator of the short-term economic health of the country concerned. When I say “relevant country”, it’s because there are different indices for different countries: the most famous in the US are the S&P 500 and the Dow Jones; FTSE 100 for the UK, DAX for Germany, CAC for France and Nikkei for Japan. These are just some examples, I cite them because they are most often traded. Binary brokers offer a huge number of indices for trading. Working hours may differ from broker to broker, and it is always better to check with your broker in the list of assets exactly what time he offers for trading the asset you are interested in.
Index Trading: Effects
Trading indices through vanilla options or futures requires a significant investment, which, unfortunately, is not available to ordinary people like us. As a result, brokers began to offer binary options on indices, which is a much less risky way to profit from price fluctuations. Speaking of fluctuations, what affects the price movement? As I said before, indices are based on the performance of a few large companies, and all of these companies can be traded. If they can be traded openly, then they should have prices on the stock exchange, right? And this is exactly what affects the indices: the price of the company on the stock exchange. Now let’s look deeper, the price of a company on the stock exchange is influenced by overall performance, as well as supply and demand.
Indices are also a measure of the overall health of the economy, so that in the intervals of economic growth, the indices in that country are likely to rise, and vice versa, during an economic downturn, the indices will decrease. From the point of view of binary options, the same steps should be taken as for any other asset. The principle is also the same: if, according to your analysis, the price of an asset rises, you will choose Call, if the price falls, select Put. Information about popular indices is always available, and almost every time you hear talk about the financial market, you are likely to hear a mention of S&P, Dow Jones or FTSE. Any self-respecting broker will provide you with news in real time, will keep you up to date with major events. When trading indices, you should pay special attention to events such as powerful storms, hurricanes, earthquakes, even terrorist attacks, as these events have a huge impact on the country’s economy and, as a result, on the indices.
My experience in trading indices
We all have our own stories about trading, and now I’m ready to share my… This is most likely a small discovery that I came across by accident. I once traded S&P… A good Call after a significant drop, which led to a bullish divergence. I’m not a big fan of reverse directions in trading, I prefer to keep up with the trend, but this divergence was too good, I just couldn’t miss it. As soon as I place a bet, I don’t like to follow the further developments, I just bite my nails while waiting for the expiration date, and, in keeping with the habit, I chose Call on the S&P and began to look at other charts to see if I could find any other great opportunity.
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The first chart I looked at was for EUR/USD… and like lightning flashed through my mind: the EUR/USD chart is very similar to the S&P chart. Almost the same falls and bullish divergence, but while my call on the S&P was steadily moving in the direction of profit, the chart looked like it was ready to grow, following the movement of the S&P. I don’t know if my decision was hasty, but I decided to bet Call on the EUR/USD pair as well. Fifteen minutes later, I saw that it was a good decision, both of my trades were profitable. So, in that case, EUR/USD follows the S&P move, it allowed me to double my earnings, I sat on the couch with a satisfied grin, thinking about whether it was pure accident or something I could repeat in the future… Well, it’s time to remove the smile from your face and get back to this phenomenon.
Information and tips on trading high-profile indices
S&P 500 Review
Exchange : NYSE, NASDAQ, NYSE Amex Working hours: five days a week, during the working hours of the above-mentioned exchanges (9.30 – 16.00 ET/EDT). Your binary options broker may offer different trading times, so check the exact time in the asset list Brokers offering binary options on the S&P 500: almost all binary options brokers offer trading on the S&P 500 My 50-word tip on the S&P: The index is influenced by the performance of the 500 companies that make up it, But different companies are given different meanings. When trading on the S&P 500, it would be wise to keep an eye on big companies like Apple, Google, or Microsoft. Most likely, their performance will affect the index more than the performance of lesser-known companies.
Dow Jones
Overview of the Industrial Average Exchange: Dow components can be traded on NASDAQ OMX and NYSE Euronext. Other Dow derivatives can be traded on the Chicago Board Options Exchange Working hours: Five days a week, during the US market. Check the exact time with your broker in the list of assets.
Dow Jones Industrial Average Binary Options Brokers: Most binary options brokers offer Dow binary options trading.
My tip for trading Dow in 50 words: The Dow is made up of the 30 largest companies in America that are traded openly. Since the index consists of only 30 companies, it is sometimes easier to trade it, since it is easier to find out all the details about a few companies, as well as their importance for pricing on the stock exchange if the company’s index is larger.
Binary Options Indices
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