Index Futures Trading

Written by Erin Jones
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Trading an index means that you're betting on the direction of an entire index rather than on the direction of a single stock's price. This is a popular choice for day traders since it eliminates some of the company-specific risk that goes along with investing in one stock. When you invest in an entire index, you're investing in a basket of stocks which trades just like a stock would, meaning it's completely liquid at any point during the trading day.

Learning about Index Futures Trading

Before you jump on the index trading bandwagon, it's important that you know what you're doing. Many programs offer you the opportunity to watch and mimic their trades and charge fees for monthly or yearly subscriptions. Without a basis of understanding, though, you're simply asking for trouble.

In addition to showing you how to trade index futures, your instruction provider should be teaching you about trading. A great way to break up any conflict of interest between trading education and trading advice is to find an educational training company that doesn't require you to trade with them! Trading with a company and learning from a different company alleviates any conflict of interest that might exist in selling you investment ideas.

Many of the popular indexes can be traded with futures investments, including the Russell MidCap index, the Nasdaq 100, and the Russell 2000 indexes. Since futures are usually traded on margin, you'll want to inquire about margin interest rates. You'll be paying this interest rate as long as you're holding your futures contracts.

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