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What are Indices?
The stock exchange index can be described as a “basket” of shares united under similar characteristics. Trading indices can be compared to trading several dozens of stocks compiled together at once. Basically, the main purpose of indices is to create a powerful indicator for investors to determine the direction of companies’ stock prices in a particular industry. When trading indices, keep in mind that the reaction to the economic news published may not correspond with expectations and forecasts.
For example, if there is a rise in oil prices, it is logical to expect an increase in the shares of all the oil companies. However, different stocks grow at different speeds, while some of them may not respond to such news at all. In this case, the spot index helps traders to understand the overall trend of this market segment without the need to assess the position of lots of different companies.