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What are the benefits of trading Indices? 
What are the benefits of trading Indices? 
Updated over a week ago

There are many benefits of trading indices, chief among them being diversification.

Unlike trading an individual symbol like a currency pair, stock, commodity, or cryptocurrency; when you trade an index, you’re dividing your exposure among a variety of individual symbols. Depending on the index in question, there could be tens (e.g. the GER40) or hundreds (e.g USA500) of underlying stocks.

This means that your capital won’t fluctuate based on the fortunes of any one company, rather, you’re investing in a sector, or an entire stock market depending on the index in question. Passive investors have historically favoured indices for this very reason.

Secondly, indices tend to be more liquid than individual stocks, which means that if you’re trading as opposed to passively investing, it’s both easy to get in and get out of a position at any time that your strategy gives you the signal, without having to deal with wide spreads, slippage, or poor order fills.

Finally, another great reason to trade indices is their usefulness as a hedging tool. For example, say your core position is bearish on the prospects of the US economy, going long a US stock index is an easy and affordable way to hedge this position so that if your thesis proves to be wrong, at least part of your trading portfolio can make up for the losses you are experiencing elsewhere. The same is, of course, true in the opposite way.

Your core position could be heavily long risk assets, for example crypto (which has been highly correlated with US stocks in recent years). In this case, a strategic short position on an index like (USATEC) may stand you in good stead should the risk-on portion of your portfolio take a dive.

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