Why trade an index?

JumpOff · Nov 21, 2004

What are the advantages of trading an index over a different kind of instrument such as an individual stock, commodity, of currency?

I know the e-mini S&P (ES) has been described as "the most liquid market in the world." So the advantage there is easy in- easy out. - Not much slippage during main trading hours?

Since the index is an aggregate of many stocks, is the action smoother? Because of the liquidity and the fact that this is an exchange traded instrument, can I assume there are less spikes and gaps of the kind you occasionally see in individual stocks or in the forex markets?

If you trade these, can you tell me why you like them better than other trading products?
Thanks,
JO

JumpOff · Nov 21, 2004

Also, is there an inexpensive and easy way to simulate trading the ES without getting on a broker's list of people to pester about opening an account? I'm looking for something similar to the forex game at oanda.

rossored · Nov 21, 2004

Morning.

For me, you've hit the nail on the head in your first post - liquidity. Also, for some reason I just find I can read it a little easier (hmm - why am I still crap then?

)

I also think indices are one of the more commonly-known instruments to trade - people start off SB'ing something, then move onto trading it via futures - for example - and stick with it.

A free but fairly basic way to paper trade the Spoos is to visit Henry's site, http://www.tradingsimulation.com. There you can download TSim Lite, which sits on your PC, takes advantage of a free feed/charts from Dukascopy (ok, you have to put up with nasty-ish charts) and lets you see how we'll you'd do. I'm sure there are others but this is the first one that springs to mind.

yourf16 · Nov 27, 2004

Strategy ! my friends

the best trading strategies enable you to cut losses. trading an index to hedge your position on its constituent shares rules out losses if the market moves in the opposite direction. so the result is always positive, if it goes to plan you gain more, if the other way round you gain less. you only lose if the market stands still, and how often have we seen that happening ?

roguetrader · Nov 27, 2004

yourf16 said:
the best trading strategies enable you to cut losses. trading an index to hedge your position on its constituent shares rules out losses if the market moves in the opposite direction. so the result is always positive, if it goes to plan you gain more, if the other way round you gain less. you only lose if the market stands still, and how often have we seen that happening ?

I understand the idea of hedging using an index but am at a loss to see how it would be a win win situation.

Racer · Nov 27, 2004

Indices don't have profit warnings out of the blue and fall 40% or more, okay if you are short.. but....

roguetrader · Nov 28, 2004

JumpOff said:
What are the advantages of trading an index over a different kind of instrument such as an individual stock, commodity, of currency?

I know the e-mini S&P (ES) has been described as "the most liquid market in the world." So the advantage there is easy in- easy out. - Not much slippage during main trading hours?

Since the index is an aggregate of many stocks, is the action smoother? Because of the liquidity and the fact that this is an exchange traded instrument, can I assume there are less spikes and gaps of the kind you occasionally see in individual stocks or in the forex markets?

If you trade these, can you tell me why you like them better than other trading products?
Thanks,
JO

I often trade index trackers such as SPY, QQQ, DIA, SMH, HHH, and OIH. As you quite rightly say liquidity is one reason, with the first 4 anyways. And also as you commented smoother, you are less likely to get whipsawed out of them. I find for me they tend to make a good swing trading vehicle which kind of reduses the issue of liquidity and at time seem easier to predict than individual issues

yourf16 · Nov 29, 2004

roguetrader said:
I understand the idea of hedging using an index but am at a loss to see how it would be a win win situation.

yeah i guess you're right, there isn't a win win situation, just increases the probability of making some profit ...

Badassras · Dec 6, 2004

I agree with the great liquidity with the mini S&P, so it is in easy and out as there usually 1000+ futures in hrs. But the only index i have traded was the IBEX, I believed it was the most undervalued euro index, since the spain bombings and change of state, the index was undervalued and was sat below 8000 for a while, whilst the other world indices rallied over the summer. I ran a hedge over the weekend, where i was long some US stocks, so i went short in the dow above 600. Net outcome- optimised hedge.

Paid off but, these yank's are nuts and don't always take the risks.

JumpOff · Dec 7, 2004

rossored said:
A free but fairly basic way to paper trade the Spoos is to visit Henry's site, http://www.tradingsimulation.com. There you can download TSim Lite, which sits on your PC, takes advantage of a free feed/charts from Dukascopy (ok, you have to put up with nasty-ish charts) and lets you see how we'll you'd do. I'm sure there are others but this is the first one that springs to mind.

I've been using Tsim and the dukascopy charts for about 10 days. Most days this seems OK, but yesterday and today, the charts and the Tsim program don't seem to be in sync with each other. It reminds me of the steering on an ooooold truck I used to have. Can't always say which is ahead and which is lagging, but a few times I'm sure the charts were ahead of the Tsim entry screen - so that's not too realistic ( I got a couple of tenths for free...). I'ts still a neat program, and kudos to Henry for making it available. Is it likely that the disconnect is caused by my internet connection? I'm on a dial up modem.

JO

china white · Dec 7, 2004

JumpOff said:
What are the advantages of trading an index over a different kind of instrument such as an individual stock, commodity, of currency?

1) liquidity => tight spreads

2) reduced volatility. E.g. trading NQs u get ATM vols at 40-60 as compared to 80-100+ on some of the issues

3) if u go to Emerging Markets tarding index reduces your individual issue political risk. Example - if u traded RTS u wud be cushioned as compared to trading YUKOS

rossored · Dec 8, 2004

JumpOff said:
I've been using Tsim and the dukascopy charts for about 10 days. Most days this seems OK, but yesterday and today, the charts and the Tsim program don't seem to be in sync with each other. It reminds me of the steering on an ooooold truck I used to have. Can't always say which is ahead and which is lagging, but a few times I'm sure the charts were ahead of the Tsim entry screen - so that's not too realistic ( I got a couple of tenths for free...). I'ts still a neat program, and kudos to Henry for making it available. Is it likely that the disconnect is caused by my internet connection? I'm on a dial up modem.

JO

JO -

Tsim is excellent, but you can probably expect the odd minor glitch if you're taking advantage of a free feed and semi-live charts. I wouldnt worry about it too much - shouldnt make too much difference to your paper bottom line.

China - nice to see ya back me old mucker

Why trade an index?

JumpOff

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rossored

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yourf16

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roguetrader

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Racer

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roguetrader

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yourf16

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Badassras

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JumpOff

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china white

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