|Instrument name||Minimum trade size||Margin requrement per min trade size||Typical AGM spread||Minimum stop distance (points)|
A stock index is a weighted benchmark used in measuring the performance of an entire stock exchange or a sector of a stock market. The value of a stock index is calculated on the basis of a change in the price of the stock assets listed in a particular sector or a particular exchange being measured. For instance, the value of a stock index such as the Nikkei 225 in Japan is a function of the change in prices of the stocks of the 225 largest companies in the Japanese stock market.
What makes stock indices tradable is the fact that the change in price of the component stock assets produces a change in the value of the index, and this intraday volatility can then be used by traders to setup long and short trades on specific indices.
Clasification of Indices
Stock indices are of various types. An understanding of the classification of stock indices give an idea of the component stocks that the index measures. It also helps the trader understand the very nature of the component indices. Stock indices are classified into the following categories:
An example of a global index is the S&P100. This is because the component stocks that form the weighted measurement for this index are drawn from several countries across the globe. There is no specific country-reference for this index and this is why it is classified as a global index.
National indices are used to measure the performance of country-specific stock exchanges. The distinguishing factor is that all component stocks are listed in the same country. Examples of national indices are the ASX200 (Australia), Nikkei225 (Japan), Hang Seng index (Hong Kong), Strait Times Index (Singapore), S&P500 (United States), Dow Jones Industrial Average (inited States), CAC40 (France), IBEX35 (Spain), Zurich SMI (Switzerland) FTSE100 (UK), Eurostoxx50 (Brussels) and NSDQ100 (United States). National indices are what you will find on most trading platforms. For instance, AG Markets offers CFD trading on several indices, some of which have been listed above.
Very rarely, you will find sectorial indices also listed for trading. These are indices that measure specific segments of a country’s stock market. For instance, the HDAX is a sectorial index that measures the performance of a particular segment of the German stock market. You will not usually find sector indices on the AG Markets CFD index listing.
Understanding How to Trade Indices on AG Markets
For each listed index asset, traders will find the following information:
- A Name of the instrument
- B Minimum trade size (in lots)
- C Margin requirements for the minimum lot size (shown for accounts denominated in Euros, GBP and US Dollars)
- D Target spread for the asset
- E Minimum stop distance (i.e. minimum number of points that can be set as the stop loss)
It is important that traders understand these contract specifications so as to know how to set the trades. Let us use an example from the Dow Jones Industrial Average index asset, which is listed with symbol name US30.
The minimum trade size will be 1 lot, requiring a margin of at least $90 for the trade if the account is USD-denominated. Target spread is 4-6 pips, while traders must use at least 6 pips as stop loss.
For the Hang Seng index (listed as HKG33 on AG Markets), the minimum trade size is 10 lots, with a margin requirement of at least $750 for the trade. The target spread is 15 pips, while the minimum stop loss distance is set at 25 pips.