What is Indices Trading?

Indices are financial instruments that track the performance of a group of assets, such as equities. So trading on indices means getting exposure to a whole group of assets with a single trade.

By tracking the performance of a large group of shares, a stock index aims to reflect the state of a broader market. There are stock indices that represent the stock market of a whole country, such as the S&P 500, and those that represent a specific sector, such as the NASDAQ Biotechnology Index, which consists of about 200 firms in the biotechnology industry.

This means that indices tend to be diversified, and you're effectively getting access to a whole sector or economy with a single trade. Those who are new to financial markets often start with index trading rather than a specific stock or other asset.

As an index is a measure rather than a tangible thing, it cannot be bought outright: you cannot buy a portion of the FTSE 100, for example. Instead, you'd need to buy shares in all of its constituent companies in the representative proportions.

Trading makes indices more accessible, by giving you exposure to their price movements without having to own any of their constituents. This means you can get exposure to an entire sector or economy with a single trade and instantly diversify your portfolio. As you're not owning the underlying asset, you can also go short as easily as long. Many trading providers continue to price indices after the market closes, too, meaning they are tradable 24 hours a day, seven days a week.