Why Trade Indices? (Part 2)
Here are the other reasons why we should trade indices:
- Leverage can boost your gains
Leverage is a powerful tool that can potentially magnify your trading profits.
However, leverage can also increase your losses, so it’s important to be aware of the risks. eToro currently offers leverage of up to X20 on selected stock indices.
- Less hassle than trading individual stocks
With indices trading, you don’t need to worry about studying individual companies’ reports or analysing their financials before you trade.
This means that trading indices can be less time-consuming than trading individual stocks.
- Less risky than trading individual stocks
Trading indices is also generally less risky than trading individual stocks because you’re effectively trading a whole basket of stocks.
This means that you’re less exposed to individual company risks.
- Indices can be used to reduce portfolio risk
Trading indices can be an effective way to hedge portfolio risk.
For example, if you own a portfolio of stocks but are concerned that the stock market could fall temporarily in the short term, you could open a short index trade in order to profit if the market falls.
If the market does fall, the short index trade will increase in value, offsetting the losses on your stocks.
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