An equity index or a stock market index, is a statistical method which measures the changes of the stock market. Indices are generally portfolios of stocks, and other kinds of investments used to signify either parts of an exchange or else the whole exchange. When it comes to understanding a stock market index, a trader needs to examine the composition of the stocks it signifies. Indices apart from representing the stocks they represent the market in total. Consequently, they are considered to be reliable indicators in describing how the economy is shifting.
Benefits of Trading Indices:
General Market Outlook – ability to take a position on the whole market. (Long or Short)
Certain Stability – a particular stock cannot have a total effect on the index.
Liquidity – a good deal of movement on the indices associates to more liquidity.
Leverage – by taking a position on an equity index a trader can get hold of better leverage.