What is Index Trading? Index trading is trading the ups and downs of a stock index rather than trade the ups and downs of a stock. You can trade the DOW, the Russell 2000, the S&P 500, or whatever index you wish.
Since 2007 investors have quietly been leaving stocks and putting their money into Index Funds. As of 2021 there was $11 trillion in index funds. Up from $2 trillion just 10 years earlier. Here at StockLocater.com, we have pretty much given up stock trading and exclusively trade indices using leveraged ETFs.
Advantages Of Trading An Index Are Many
When markets rise, only 75% of stocks will rise with it. There is no guarantee that the stock you picked will go up. When trading an index, if you are correct on market direction, your Index ETF is guaranteed to go up.
Index Trading makes it easy to LEVERAGE. With stocks you have to use margin to get leverage. When Index Trading, you never borrow money and you can leverage your portfolio up to 3 times return using leveraged Index ETF’s.
You can profit when markets drop! With stocks you have to short-sell and are at the mercy of your broker if things go wrong. With Index Trading you are in control. No need need to borrow shares to short-sell.
Let’s Put It All Together
Now that you've read the advantages, let's see how it all works
Step 2: Decide how much leverage you are willing to take. 1x, 2x, or 3x the index.
Step 3: Find an Exchange Traded Fund (ETF) to trade.
Step 4: Determine market direction. This is where most traders get it wrong. You need to be certain of market direction.
Whether you plan to trade stocks or trade an index ETF, you need to analyze market direction first.
With stocks you would go long, or sell short. With Index ETF’s you trade a pair. There is one ETF that goes up when the markets rise, and another that goes up when the markets fall (called an Inverse ETF or Contra-ETF). My favorites for the S&P 500 is UPRO and SPXU.
With Index Trading you don’t need to worry about if a company will be profitable, if the management will fall apart, or even if the company you are buying stock in is going bankrupt. All you need do is be correct about the market direction.
If you would like us to determine market direction and then email you when an index is about to reverse direction, check out our Index Trading System.