Trading Currencies Or Indices??

Trading Currencies Or Indices

Over the years I have spent a lot of my time trading the Forex markets, until one day when a friend of mine introduced me to indices. What are indices you may ask?

Indices are a measurement of price of a group of shares that are bundled together in an exchange, i.e., the NASDAQ, S&P500 or the DAX.

At first, I didn’t understand why he was so fascinated by indices. The only reason I didn’t understand at was because I kept getting knocked off my feet, losing trade after trade. This left me frustrated and honestly uninterested in the indices market for a very long time.

A lot of traders move from Forex trading to index trading on the search for more risk and of course more reward. As they say the higher the risk the higher the reward! Before we get carried away with how much more exciting indices may be let’s look at the differences between Forex and indices.

1. Indices require more margin than Forex

The amount of margin and leverage required to place a trade on the NASDAQ is significantly more than then margin required on a currency pair like USDCAD.

2. Indices move quicker than Forex pairs

The movement you expect on Forex pairs in a week, can usually happen in a matter of minutes in the indices market. Now, this is exciting for most but if you are not careful it can also go horribly wrong.

3. There is more profit in indices than in Forex

Trading the indices market can be daunting for the most part especially if you have no experience and if you are not sure how to calculate lot sizing adequately. With the smallest amount of risk, you can still gain a good return.

This does not mean I am advocating that a trader changes what they trade. Not at all! If anything, stick to what you trade, whatever makes you comfortable and works for you. It is important to learn the skill of trading first before you jump into the markets.  

Trading the indices market may not be the same as trading the Forex markets. Your approach in trading the Forex market and the Indices market may be different as well.

Have a great week fellow trader!

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Emmanuel Maphosa

Emmanuel Maphosa

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