Top 10 Best Brokers for Trading Indices in 2023

Brokers for indices trading are intermediaries that provide a trading platform and services to individuals and institutions that want to trade index-based financial instruments.

Indices trading refers to the trading of a group of stocks that are represented as a single entity, or an ‘index’.

A common example of an Index is the S&P 500, which is a stock index that represents the performance of 500 large companies listed on the US stock exchanges. Each index operates as a benchmark for the overall market or a specific sector of the market, and its value fluctuates based on the performance of the underlying stocks.

Brokers offer a variety of indices for trading, such as:

• Major Global Indices: These include the Dow Jones Industrial Average (DJIA), S&P 500, NASDAQ Composite in the US, FTSE 100 in the UK, DAX 30 in Germany, CAC 40 in France, Nikkei 225 in Japan, etc.
• Sector Indices: These track the performance of specific sectors like technology, healthcare, or energy.
• Regional Indices: These represent the performance of the stocks in a specific geographic region.

Traders can speculate on the price movements of these indices without owning the underlying assets. This can be done through several financial derivatives like futures, options, contracts for difference (CFDs), exchange-traded funds (ETFs), and more.

To start trading indices, it’s suggested to have at least $2,500 in your account. The amount varies based on the contract, volume, and leverage offered by brokers. High leverage, while reducing the required trading amount, increases risk. Hence, depositing a small amount and using high leverage is not advisable for index trading. It’s essential to maintain enough margin to handle market fluctuations.

Investing in indices can either be speculative or long-term. Speculative investing involves high risk due to the use of leverage, while long-term investments, typically less risky, hinge on historical trends of indices increasing in value. Derivatives may not be ideal for long-term investing due to daily fees, so equity ETFs might be a better option.

Investing in indices diversifies the portfolio, unlike investing in individual stocks which comes with a higher risk. For beginners, it’s recommended to follow regulatory guidelines on leverage, practice with a demo account, study the index trading market, and learn effective risk management methods, such as setting stop losses and take profits.

In this article we have included mainly brokers that offer CFDs on indices, but not only that. Some of them also offer Futures, Options and Spread Betting on indices.

The factors we have considered in compiling this list of the best brokerage firms for indices trading are listed below:

• The number of indices available
• The commissions involved
• The different derivatives and ways to trade indices offered by each broker
• The availability of mini-indices
• The overall trustworthiness of the brokers

Round-up

Below is a closer look at some of the key information for each major broker we have listed.

What are the best indices trading brokers?

Here are the brokers we have selected as some of the top choices for trading indices.

How much money is needed to trade indices?

To trade indices you should have at least $2,500 in your account. In fact, considering that you should not risk more than 2% of your capital per trade, and that $50 is generally the minimum amount of money needed to open an order on indices, $2,500 gives you some degree of flexibility.

This amount varies from broker to broker according to three factors:

• The contract: the amount of money needed to open a “full” position on the index.
• The volume: how many contracts the broker needs to execute the order.
• The leverage: multiplier of funds you have available in your account.

For example, if a contract is worth $10,000 and the minimum volume is 0.1, that means you will need $1,000 to open a position.

Leverage can then be applied to further reduce the amount required. With a 1:20 leverage, it will be possible to open a position with $50 ($1000/20).

However, the higher the leverage, the higher the risk. In fact, investing $50 at 1:20 leverage would mean that a 1% change in the index would correspond to a $10 change in the position (1% of $1000 is $10).

A solution are brokers that offer mini-indices such as IC Markets, which are based on smaller contracts. These allow traders to open positions on indices with less money than their standard counterparts.

Visit IC Markets
(74-89% of retail CFD accounts lose money)

For this reason, it is not recommended to deposit little money and use high leverage when trading indices.

If you are going to trade with leverage, you need to make sure that you have the necessary margin to absorb any natural market swings.

For example, on a daily basis, the S&P value fluctuates about 500 points, which translates to $5 or $0.5 if we take the previous example with the trade of 0.1 contracts. So in case of 1:20 leverage (which can be even higher), we can expect a maximum daily fluctuation of $10 which would wipe a low-budget trading account in a few days if everything goes wrong.

Index investing vs Index trading

There are two main ways to invest in indices. The first is to speculate on their value, or the second is to invest in them for the long term.

• In speculation , the risk involved is high, as you will have to use leverage and know how to manage your trading positions.
• In long-term investing , on the other hand, the focus is on the fact that historically indices tend to increase in value. So a long-term investment may be less risky.

However, you should be aware that long-term investing with derivatives may not be ideal, as there are a number of daily fees called rollovers, which slowly reduce the potential margin or earnings. In this case, it is best to learn about brokers that offer equity ETFs such as DEGIRO.

Visit DEGIRO
(Investing involves risk of loss)

Although they are a more flexible and economical way to invest in indices, it must be remembered that they are more or less faithful replicas of the performance of indices, and not real indices.

Keep in mind also, that by investing in ETFs indices, you will generally not be able to trade futures since all ETFs are based on spot index prices.

Trading Indices vs stock trading

Investing in indices is a good way to diversify your portfolio as it is a basket of stocks.

The stock market, while requiring less money to open a position in most cases, exposes us more to risk since we have to pick individual stocks.

However when it comes to short-term speculation, both come with a high level of risk

What are synthetic indices?

Synthetic indices are ETF-like assets that replicate certain features of particular financial markets in real-time.

The most well-known of these tradable assets is the VIX also known as the fear and greed index. This index monitors volatility in the market and is often used by experts to assess the sentiment or emotional state of the market.

The Boom 1000 Index is another such synthetic index that also measures volatility over a set period of time.

Useful tips for beginners to trade indices

Here are some useful tips for those new to trading indices:

• Consider that under ESMA, FCA, and ASIC guidelines, the maximum leverage on indices is 20:1
• Practice with a demo account before depositing real money
• Read content published on specialized websites to study the index trading market
• Learn how to set stop losses and take profits for effective risk management

Resources to get started and learn index trading

DailyFX is more aimed at general trading, but there is specific data about indices. Under ‘Market Data’ you can find the basics about Indices. Navigating through the site, you’ll find market news, educational materials, and more, including ones about indices.

At Money Control, you’ll find global indices and some data (current value, change, etc). In general, the site deals with many topics but features a lot about trading and finance. Under ‘Markets’ you can find useful information about different topics, including indices.

With Investopedia, under the category “Index Trading Strategy”, you’ll find different guides and articles on index trading. This is helpful for both experienced indices trading and for those newer to trading and who want to expand their knowledge.

Indexology has different sections, including ‘Indices’ with all the information you need about Indices. The ‘Research and Insights’ area leads to Blog, Education, Performance Reports, and Commentary sections. All have information relating to Indices.

Investing.com is one of the most famous websites about finance and investing. You’ll find summary information and technical analysis on all of the world’s indices, live graphs of indices, and more.

FAQs

What is the difference between spot and futures indices?

A spot index refers to its price: it is the current price in the market at which the index can be bought or sold immediately. Index futures are futures contracts that allow traders to buy or sell an index today to be set at a future date.

Is it risky to trade indices?

Online trading, in general, is risky, and while indices are less volatile than other markets, they are no exception. Open a demo account to practice before depositing real money.