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How to: trade Global Equity indices

For some traders, market indices are their vehicle of choice. But what are they and why are they appealing?

Trading Cash Equity Indices allows you trade the movement in a range of Global equity indices removing the interest and dividends that are priced into the equity index futures. In essence, you simply trade on the index’s price movement. For CFD traders, indices are one such vehicle to easily express a trading view - long or short - over any timeframe. Could they become your vehicle of choice?

Understanding how market indices are constructed and utilised can help add meaning and clarity to a wide variety of investing avenues. Let’s see how.

Index composition definition

Let’s unpack the composition of an index. An equity index is really a basket of stocks.

For the large majority of markets these stocks are either weighted by their market capitalisation or for the US30 and JPN225 by their price.

In most cases, the larger the market cap, the greater the weight and influence on the index.

For example, as of May 2022, Apple had a market cap of $2.42 trillion and it subsequently has an dynamic index weight on the NAS100 of 12.5%. Microsoft is at 10%. We know that if news impacts either stock and we see a strong move it will subsequently have a big impact on the NAS100.

Why CFD traders gravitate to Index trading

So why do some CFD traders focus on Global Equity Markets?

Some indices are open 24 hours a day or near 24 hours, limiting the risk of gapping. If big news drops when the New York Stock Exchange is closed, having access to a near 24-hour index CFD means you can react in real-time and not miss an opportunity to open or close a position.

They also have good levels of movement on an intraday basis, have highly competitive spreads and they offer fantastic diversification from single stocks.

Why use Pepperstone to trade global equity indices

Pepperstone offers an extensive range of indices. Our global equity indices allow you to analyse and compare developed, emerging, and select frontier markets at varying levels of granularity.

Due to the competitive spreads we offer, CFD indices are relatively cheap to trade.

There is a daily funding charge if the position is held past 5pm New York time but this can be mitigated if the trader closes before this point. We also hold excellent liquidity conditions, which help traders avoid slippage when entering a position, in turn helping to reduce transaction costs.

Learn more about trading CFDS

Here at Pepperstone, our customers love the product range along with the low cost to trade and the fact so many markets are open around the clock. Interested? Watch the more videos to learn or speak to our team about whether CFDs are right for you.