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Trading Forex is
risky, with an exceedingly small number of traders who try their hands with
this financial market succeeding. While losses are inevitable, most individuals
who lose trading forex usually lack knowledge, discipline, risk management
skills, or implement a poorly developed trading strategy. However, the ability
to potentially amplify trading profits using leverage has attracted both novice
and experienced traders to Forex.
However, other
trading instruments potentially less complicated than Forex could help simplify
the trading experience, leading to better long-term success. For example,
trading equity indices could offer various trading opportunities while lowing
risks through their inherent diversified structure.
Equity indices
track a group of stocks that could vary based on the intended objective of the underlying
developer of the index. Here are examples of well-known market indices actively
traded in the financial markets:
·
The
UK Financial Times Stock Exchange 100 (FTSE 100 (^FTSE)): The FTSE 100, also known as the "Footsie,"
is an index managed by the FTSE Group. The index has been around since 1984 and
consists of stocks of one hundred most reputable companies in the UK, including
HSBC, Burberry, Tesco, Barclays, Vodafone, and many more.
·
Dow
Jones Industrial Average (The Dow(^DJI)): The Dow Jones consists of stocks of the thirty largest
companies in the US. Companies part of the index includes Apple, Boeing,
MacDonald's, Microsoft, Coca-Cola, Visa, etc.
·
The
Standard and Poor's 500 (S&P
500 (^GSPC)): The
standard and poor, also known as the S&P, tracks the stocks of the five
hundred largest companies by market cap traded in the US. The companies
included are Alphabet, Facebook, Amazon, and many more.
·
German
Stock Index DAX 30 (DAX Performance-Index (^GDAXI)): The DAX comprises the thirty largest
companies traded on the Frankfurt Stock Exchange in Germany. Some companies
included in DAX are Lufthansa, Covestro, Wirecard, Deutsche bank, and more.
·
Nasdaq
100 Index (NASDAQ Composite
(^IXIC)): The Nasdaq 100
has 102 equity securities issued by one hundred non-financial companies found
on the NASDAQ Stock Exchange. The Nasdaq 100 consists of tech companies,
including Apple, Intel, Facebook, Alphabet, etc.
So why trade
equity indices? As previously discussed, equity indices represent a group of
stocks that allows traders to diversify risk, which could reduce the magnitude
of drawdown exposure present with trading individual stocks or currencies. Generally
speaking, history suggests that equity indices tend to trend higher, but it is
essential to recognize that downturns can and will happen. Although trading
equity indices help diversify risk, it does not eliminate the systematic risk
that will always lurk in the shadows of financial markets. Therefore, it is
always important to practice good risk management.
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