What is Stock Index Trading?
When economists talk about “the stock market,” they are referring collectively to the different major stock exchanges and indices. In the United States, the major stock exchanges are the NASDAQ and the New York Stock Exchange (NYSE).
There are also a number of major indices that are comprised of stocks that trade on the NASDAQ and NYSE. For example, the S&P 500 is an index that tracks 500 different stocks, the Dow Jones Industrial Average is a price-weighted average of 30 major stocks traded on the NYSE and the NASDAQ, and the Russell 2000 is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index, which is itself an index that measures the performance of the largest 3,000 U.S. companies.
While investors can buy and sell the individual stocks that go into making up the NASDAQ and NYSE, the actual stock markets and stock indices cannot be traded—at least, not in the same way.
It’s certainly not uncommon to hear traders say they are “long” (bullish) or “short” (bearish) on the NASDAQ or S&P 500, but that does not mean they are actually bullish on the NASDAQ or bearish on the S&P. When someone says they are long or short, it means they have taken a position on a futures or option market.
Stock market index trading is actually futures and options that track a specific stock index and, because they are derived from the underlying stock index, are known as derivatives markets. Investors can buy futures and options for all of the major stock indexes and are popular investment vehicles for both short- and long-term traders.
Why do investors like stock index trading? Some investors like to purchase future contracts in stock indexes because they get exposure to the entire index or market with one transaction. Without stock market indexing, investors would have to diversify their portfolio by purchasing every individual stock, which requires numerous transactions and higher costs. It also means spending a lot of time managing your portfolio.
Like a stock, investors can purchase stock index futures or options through their broker. But that’s where the similarities end; buying and selling, tracking, and calculating the gains and losses of stock index trading are very, very different.
Stock market index futures trade in the same way as other futures contracts. Taking a long position in the E-mini Dow, the main futures contract on the Dow Jones, means you are buying the index at a fixed price now for expiry on a set date in the future. Taking a short position means you are selling the index at a fixed price now, for expiry on a set date in the future.
What You Will Learn in a Stock Index Trading Course
There can be no stock markets or stock market indexes without publicly traded companies. Learn-To-Trade.com understands that to fully grasp stock index trading, investors need a comprehensive understanding of the overall stock market.
At Learn-To-Trade.com, we offer stock index trading courses in Toronto and the GTA that will teach you everything you need to know to successfully trade stock indexes. In addition to showing you the best ways to read, track, and assess a stock index, we’ll teach you how short-term stock index trading can play an important part in your overall trading strategy. For example, in a volatile market, you might want to consider taking small-but-regular profits.
Taking stock index trading courses in the GTA from the professionals at Learn-To-Trade.com will also show you how to reduce risk and hedge against losses. You can limit your exposure to unwanted risk by opening an opposite position index futures; this will help offset any losses should your options move against you.
Learn-To-Trade.com’s stock index trading courses in Toronto provide in-depth training techniques that give you the confidence to delve into the world of stock index trading.