Trading is a common phenomenon that has been around since the age of humans. If you want something, trade in what you have to get what you need. This is the same principle governing modern-day trading. 

However, modern-day trading involves a lot of technicalities, losses, and some good measure of luck. If you’re interested in trading, you’ve probably watched a couple of videos where some guy flaunts a $500k car, a house on a beach, etc.  

That is the trading they want you to see; however, index trading has a lot of kinks and underground work that is done before you can live those flashy lifestyles. If you’d like to trade, you’d need a type of market to trade first. 

The most popular markets are Indices and Forex. You’ve probably heard a lot of Indices vs. Forex debates online. This is because these markets have the lowest volatility, which benefits short-term traders like you. 

Before you delve into the world of index trading, here are a few things you should know.  

What is Index Trading? 

First off, an index in trading is a measure of the value of stocks in a market. Indices are calculated based on the prices of selected stocks in the market. Some popular stock market indices include; FTSE(100), CAC(40), DAX(Germany), etc. 

Therefore, index trading means trading stocks listed on the stock market. You’re buying and selling a specific stock in the market. Index traders speculate on price action and movement to know when to buy or sell. 

Types of Indices Online 

Before you start trading indices, you must know the different types. They are;  Index Cash CFDs and Index Futures CFDs. 

Cash and Futures are traded in the same way, except with Cash CFDs, there is no expiration on the market. However, the Futures market has an expiry date commonly called ‘rollover.’ 

Futures refers to a trading agreement between a buyer and a seller that specifies the price the buyer has to pay at a predetermined date.  

Facts About Index Trading 

Now you know what index trading is and which type of indices you want to trade. However, before you dive into the indices world, here are five essential facts to know about index trading: 

1. Trading Indices Comes with A lot of Risks 

If you delve into the forex market without thinking about the possibility of losing your hard-earned cash, you’ll regret some of your decisions.  

Most popular youtube traders always have a disclaimer when making tutorials; they state clearly that trading comes with many risks, and they shouldn’t make any financial decision based on the advice they give. 

They do this because some folks might use their strategy and invest thousands of dollars and lose it in a flash, then they start whining around about how much they’ve lost. So, before trading indices, be prepared to lose a little money. 

2. Trading Signals Aren’t Always Reliable 

Trading signals give traders some hints on the movement of price. These trading signals are given out by expert traders who have carefully analyzed the market and give you an entry and an exit point to make profits easily. 

This trading method sounds enticing until one of the signals is wrong. That’s when you realize that you shouldn’t make all your trading decisions based on a signal because they’re not always going to be accurate. 

The market is very volatile; something as small as a ban on a country’s goods could cause a market crash or boom. These circumstances are unplanned, and no expert can plan for them, no matter how experienced. 

So before you start trading, do well to make your market analysis before taking that trade. 

3. Only 1.6% of Traders are Profitable 

Yes, you read that right; out of the millions of traders worldwide, only about 1.6% of them are profitable. Now you might wonder, if all these trading signals fly around to help people make money, why are only a handful successful. That’s because trading requires skill and knowledge. 

Traders who find themselves among that 2% have gained knowledge over the years, practiced, won, and also lost a lot of cash. To be among that thriving community, you need to dedicate time to learning basic and advanced trading strategies. 

4. You can Make a Living Trading Indices 

We’ve been listing some pretty discouraging facts about index trading, but we’re certainly not all nays here; you can get rich by trading.  

Now, rich is a subjective term. In a country like the US, you need to earn almost $600k annually to be considered among the elite in society. While some countries like Nigeria, making as little as $40k would be regarded as a wealthy person. 

However, the forex market is universal. Profits made in the US would be the same as those made in Brazil. So, if you trade the market correctly, you can make a good living out of index trading.  

5. Trading is a Mental Game 

To be a successful trader, you need to control your emotions. Don’t make hasty trading decisions immediately you see the market moving against you. Because the market is very volatile, if you have a little patience, the market might bounce back to favor you. 

Conclusion 

Trading is gradually becoming a viable means for folks to earn money from the comfort of their homes. If you like the idea of index trading, digest these five facts we’ve discussed to help you make better trading decisions.