Which Indices are good to trade in the Forex market today? – Trading Strategies for Beginner

There are many Indices that one can trade today within the forex market such that it often becomes difficult to say which Index is the best to trade over the others. This is because every index has unique features, and investors push it higher or lower daily. However, traders are more attracted to the following major Indices: CHI50 (FTSE CHINA A50), HK50 (Hong Kong 50 Index),  HKCH50 (Hong Kong China H-Shares), AUS200 (Australian S&P 200), EU50 (Euro Stoxx 50), ESP35 (Spain Ibex 35), FRA40 (French CAC 40), Ger30 (German 30), IT40 (Italy MIB40), JP225 (Japan Nikkei 225), UK100 (UK 100), US30 (US Dow  Jones), Nas100 (US Nasdaq 100), SPX500 (US S&P 500) and USDX (US Dollar Futures).

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Among all the indices listed above, the Chinese and US indices seem the most volatile and have become investors and traders favorite choice for quick profits over time. However, other indices outside these seem to be the preferred choice for conservative traders who want long term gains. Hence the following indices make up the list of indices traded the most in the global markets:

 

  1. Ger30 (Germany 30) tracks the performance of the 30 largest companies listed on the Frankfurt Stock Exchange.
  2. NASDAQ 100 (US Tech 100) reports the market value of the 100 largest non-financial companies in the US
  3. FTSE 100 measures the performance of 100 blue-chip companies listed on the London Stock Exchange
  4. SPX 500 (US  S&P 500) tracks the value of 500 large-cap companies in the US

 

Often, Indices measure the price performance of a group of shares from an exchange. For instance, the FTSE 100 tracks the 100 largest companies on the London Stock Exchange. The exciting thing is that trading indices allow you to get exposure to an entire economy or sector at once, while only having to open a single position in the market.

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Factors that move the stock price index

The following are the significant factors that move the prices of an index traded on different exchanges today.

  • Economic news, General investor sentiment, central bank announcements, NFP reports and other economic events often cause significant volatility in the market prices of the affected index. 
  • Political situations: Often, the political situation in a country affects the prices of shares and bonds in that country. Stability in politics means that more investors are likely to buy the country’s index in the market and vice-versa.
  • Company financial results, individual company profits and losses can cause share prices to rise or fall, affecting an index’s price.
  • Company announcements, development roadmaps, changes to company leadership and policies often affect index prices positively or negatively. Likewise, the release of a company’s whitepaper and development roadmap tends to affect the prices of their constituent index too.
  • Changes to an index’s composition: popular indices could see their prices shift when companies are added or removed. This is so because traders are forced to adjust their positions to align with the new composition.
  • Commodity prices typically rise when inflation is accelerating. In such cases, the asset class tends to serve as a hedge against the decreased buying power of the affected currency leading to a rise in the index’s price. Therefore various commodities will affect different indices prices. For instance, over 20% of the shares listed on the FTSE 100 are commodity stocks. This implies that any fluctuations in the commodities market could affect the index’s prices.
  • Tapering: the Federal Reserve policy of unwinding the massive purchases of Treasury bonds and mortgage-backed securities could affect the prices of an index massively. Tapering also involves the reduction of the rate at which the central bank accumulates new assets on its balance sheet under the quantitative easing policy. These two factors can hike the prices of the index once the extra liquidity is removed from some sectors.
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