Index trading: Advantages

Indexes are not manipulative

In a world where people are becoming more and more paranoid it always amazes me how few traders take up indices trading. However, indices are the least manipulable financial instruments. The Forex does not have a centralized quote, all the brokers propose their own price. Cryptocurrencies have such weak volumes that with a few million euros you can do whatever you want...

As for manipulating an index, it's not possible, since you don't actually buy an index. In an index you can invest any amount you want. If he goes crazy, 100 million euros in one fell swoop. It will vary a few points and the algorithms will detect the inconsistency and rush to return it to the normal price. They will take advantage of the bargain by making you lose considerable sums.

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What makes the price of an index change?

What makes the index vary is not you, it is the prices of the shares that compose it. It is a weighted mathematical average of 30, 40, 100, 500, 2,000 companies at the same time, depending on the indices. Therefore, to manipulate an index, the cost would be infinitely higher than the expected benefits. It would take buying or selling tens of thousands of company shares at the same time in tens of thousands of listed companies.

You are not going to spend 100 million euros to make an index vary 20 points when with the same sum you dominate bitcoin or a very specific stock.

It is also the end of the urban legend, I am going to look for my stop (paranoia mode of the bad trader who seeks a pretext for not accepting the fact that it has been bad). Of course, it is clear that you are not going to spend €50,000,000 to find the stop on a micro lot at €1. The great advantage of indices is that nobody has the financial capacity to manipulate them. In addition, the price of the indices is worldwide, it is the same for all traders.

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Money management is integrated into index trading

It can be said that with an index we already have integrated money management , since it is simply a basket of shares. You don't put all your eggs in the same basket. If you buy the Nasdaq 100, you are diversifying out of a hundred American high-tech companies.

By buying the IBEX 35 index for example, you are dedicating a larger part to banking. With the Footsie, he is favoring financial companies. When trading the Dax 30, the weight of the industry is higher than many other indices. Therefore, there is a great subtlety in trading the indices. You have to know them. And of course I'm not talking about specialized indices, such as sector indices that will be more sensitive than more diversified indices.

Index trading, the risks are lower

The risk is the death of the trader. You absolutely need to get this into your head: if you want to have a chance in trading, you need to run away from risk. Risk is profitable once, twice, three times, but the fourth time it knocks you out. He is the main enemy with himself in trading.

Trading a stock is risky for many reasons: for example, if the president has a problem, the company can end up in court... Every day there are stocks that win or lose 10%, 25%... Beginners The stock market gets excited about this because they figure, of course, they're going to earn 25%. They can also take a -25% slap in the face and take years to recover, especially if they are low on capital.

An index that loses 10% is a historic event. It's still being talked about 20 years later.

Trading an index avoids the risk of bankruptcy

Also, an index cannot go bust, unlike a company, where you lose your entire investment. If a Dax 30 company goes bankrupt, it is automatically replaced by the 31st German company. The weight of this bankruptcy in the index will therefore be very limited. But if you own that share, you've lost everything.

Indices take advantage of the global economic situation

Since you do not put all your eggs in one basket, what you are doing when you buy a cryptocurrency, a stock, or when you trade Forex, you benefit from the dynamism of the general world situation since you invest in 30, 50, 100 companies. . If one of these companies struggles, it won't stop them from seeing their index progress.

Similarly, with indices spread the risk. You benefit from the dynamics of the global economy, positive or negative, depending on whether you buy or sell the index. With a bit of experience, you can see the trend in indices over the medium to long term. Therefore, if you don't have an aggressive short-term strategy, you can easily get carried away.

Each index has its personality

It is, without a doubt, one of my favorite things with indices, they all have character. Indices all have their own personality, a temperament that will suit scalping , day trading or swing trading . They are like human beings, they are typified, they have their own personality traits. You are sure to find an index that matches your trading personality.

Of course, just as you do not behave in the same way with an aggressive person as with a passive person, you must have adequate techniques for each index.

Index tradig is ethical

It may surprise you, but trading indices is ethical. You can explain it to his friends, who judge traders without having the slightest knowledge of economics. When you buy or sell indices, you have absolutely no impact on the stock price. Consequently, in the lives of employees and all that talk that you hear in the media.

It does not produce any impact on the countries' debt, it does not produce any impact on raw materials, etc. You buy and sell an index. The fact of investing in an index directly does not change the prices of the shares. You have a totally neutral ecological footprint.

Conversely, if your friends have life insurance, they have an impact on economic life and on the lives of "people." They are speculating with the debt of the countries, for example. Usually they won't thank you for explaining this, but you need to get them out of their economic obscurantism.

Conclusion on Index trading

Why trade indices? Indices trading is secure trading with integrated money management . The risks of trading indices are lower than with other products, since an index cannot fail.

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