Knowledge Basics

What is the Difference Between Index and Share Trading?

Share trading is when you trade the shares of a specific company. The price of the shares is determined after investment companies evaluate the value of the company using complex techniques. Once the value is calculated, they determine the price and the number of shares that will be floated.

You need to remember that while you can also trade Share CFDs, you will always be trading on specific company’s shares only, in case of share trading.

On the other hand, Index trading is the trading of a collection of many stocks that make up the index through a single instrument. The index tracks a basket of stocks that are used as indicators of an overall representation of the entire stock market (like S&P500), or they could be a specialised segment of a stock exchange like technology (NASDAQ).

What factors affect the stock market indices prices?

An index’s price can be affected by a range of factors, including:

Company financial results – A company’s profits and losses will impact the share prices which can affect an index’s price. For indices that are weighted averages, the performance of the largest components exerts more of an influence.

Political News – Elections, wars, referendums, and any major political event also affects an index’s pricing.

Company announcements – Changes to company leadership or possible mergers will likely affect share prices, which can have either a positive or negative effect on an index’s price.

Changes to an index’s composition – Weighted indices can see their prices shift when companies are added or removed, as traders adjust their positions to account for the new composition.

Commodity prices – Any movement in the prices of commodities can also impact an index’s price. For example, 15% of the shares listed on the FTSE 100 are commodity stocks, which means any fluctuations in the commodity market could affect the index’s price.

Investor sentiments, central bank announcements, payroll reports or other economic events can also cause an index’s price to move.

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