We live in a world where stock market talk is everywhere and names like S&P 500 and Nasdaq have integrated our everyday vocabulary. These are indices and in the arena of binary options trading, many people prefer to trade indices in place of individual stocks.
It happens everyday whether you open the newspaper or you turn on the radio. You hear people talking about S&P 500, Nasdaq or the FTSE. These are indices constructed using the shares of leading companies in an economy or in a section of the economy. By definition, an index is a compilation of the largest tradeable stocks in a country or sector. In binary options trading, many investors favor trading in indices rather than individual stocks because the underlying asset is not a single company’s performance in the stock market but a group of companies, allowing for diversification.
Some Popular Indices
If you’re looking to invest in binary options index trading, some names are more popular than others. For example, with the growing importance of the stock market in our society, some names like Dow Jones Industrial and Nasdaq have become part and parcel of our daily vocabulary. Some of the other popular indices include FTSE, S&P 500, Dubai and Hang Seng.
- S&P 500
Dow, also known as the Dow Jones Industrial Average, is a stock market index created by Wall Street Journal editor Charles Dow. It measures the performance of 30 of the largest publicly traded companies in the United States including 3M, Apple, Intel, Nike, McDonald’s and Visa. Trading in the financial asset runs Monday to Friday from 13:40 GMT to 20:00 GMT.
The Financial Times Stock Exchange 100 Index or FTSE is a stock index of the 100 largest companies traded on the London Stock Exchange by market capitalisation. It is one of the most popular indices in the world and is traded Monday to Friday from 07:30 GMT to 15:30 GMT.
Founded in 1971, the Nasdaq Stock Market is the second largest stock exchange in the world by market capitalisation behind the New York Stock Exchange.Trading is open Monday to Friday, from 13:40 GMT to 20:00 GMT.
The Standard & Poor’s 500, abbreviated as S&P 500, is an American stock market index that measures the market capitalizations of 500 of the largest publicly traded companies in the United States. It is one of the most quoted indices and is generally considered as one of the best representations of the U.S. stock market. Trading is open Monday to Friday from 13:40 GMT to 20:00 GMT.
In addition to the indices above, the Nikkei 225 in Japan is a popular stock market index for the Tokyo Stock Exchange (TSE) while the Hang Seng Index is a freefloat-adjusted, market capitalization-weighted, stock market index in Hong Kong.
How does it work and how is it affected?
So far we’ve established that an index tracks either a representative sample of the broader market or the whole market. Consequently, the movement of an index is based on the individual performances of the stocks that make up the index. For example, if the prices of the individual stocks in the index rise, the value of the index rises. Similarly, if the stock prices fold, the index loses value. Stocks that are tracked in an index are all grouped together so trading in index binary options will generate a fixed cash settlement if the underlying index settles at or higher than the strike price.
Investing in an index has many advantages over trading individual stocks. For a start, when trading index options instead of individual stock options, you achieve effective diversification of risk. An index is also intended to accurately report movement in a broader market. Track the market and logic says that the index will move in line with the market conditions. When trading in indices, it is also important to determine whether the index is broad-based or more limited like Dow including the stocks of only 30 large companies. After all, it is much easier to approximate the movement of a narrow-based index, which is subject to a smaller number of issues.
Trading indices with BinaryOnline
Trading in indices with BinaryOnline is a simple 4-step process.
- Log into your BinaryOnline account and choose a trading tool
- Located Indices and choose an asset to trade with
- Set an expiry time and choose your investment amount
- Purchase a Call or Put option