What Is Index Trading?
Index trading is a very profitable way to make money, if done right.
Basically, you buy and sell an Index instead of stock in a company. You can trade the DOW, the Russell 2000, the S&P 500, or whatever index you wish.
The advantages to trading an Index instead of a stock are many.
1) When markets rise, only 75% of stocks will rise with it. There is no guarantee that the stock you picked will rise with the market. However, with Index Trading, if the markets rise you are guaranteed to have a winner as 100% of the Indices will rise with it.
2) Another great advantage is LEVERAGE. With stocks you have to use margin to get leverage. With Index Trading you never borrow money and you can leverage your portfolio up to 3 times return. Fir example, if the markets rise 1%, you get 3%. Best leverage there is.
3) You can make money when the markets drop so much easier with Index Trading. With stocks you have to short-sell and are at the mercy of your broker if things go wrong. With Index Trading you never need to borrow shares to short-sell and therfore are always in complete control of your investment.
Now that I’ve laid out the advantages, let’s see how it all works.
Step 1: Pick an index to trade.
Step 2: Decide how much risk you are willing to take. 1 = minimal. 2 = moderate and 3 = maximum.
Step 3: Now that you know the index and how much risk you are willing to take, now you must find an Exchange Traded Fund (ETF) to trade. Do a Google and find the ETF that suits your needs.
Example: I want to trade the Russell 2000 and I’m willing to take moderate risk (2). I can Google “Russell 2000 2x ETF”. To search for others simply change name of the Index and change the number based on your risk.
Searching Google for the above we find that UWM and TWM come up. Both are 2x leveraged ETF’s based on the Russell 2000 index. UWM will profit when the Russell 2000 goes up. TWM will profit when the Russell 2000 goes down. So you see, you can make money no matter which way the market goes.
Step 4: Determine market direction. Now comes the tricky part. This is where most traders get it wrong. You need to be certain of market direction. If you are sure the markets will rise, buy UWM. If you are certain the markets will fall, buy TWM.
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 don’t know how to determine that I suggest you spend a few years learning technical analysis.
You could take the easy way out. I currently run an Index Trading portfolio (I call it Go With The Flow) that as of September 7, 2011 is up over 51% (while the DOW is only up 1%). The easy way is to just partner with me and let me monitor the markets for you. I’ll tell you when the markets are going up and when they are going down. No need to waste years studying charts, etc..
If you want the quick route to gains, please visit my Index Trading Strategy page for more details on how you can partner with me.