Index Trading in the UAE

Most global indices are based on the market capitalisation of the companies that make up that index. The larger cap organisations have greater weight, so their performance will have a greater influence on the value of the index than those with a lower market capitalisation.

Then there are global market indices that are weighted by the price of a company’s shares. In that instance, the performance of organisations has a more significant impact on the index than those whose share prices are lower.

There are a number of global indices available for you to trade. These five tend to be among the most popular:

• Wall Street 30 (Dow Jones Industrial Average): Tracks the performance of 30 of the biggest publicly traded firms in the United States.
• Germany 40 (DAX): Made up of the 40 largest companies on the Frankfurt Stock Exchange.
• UK 100 (FTSE 100): The UK’s largest 100 firms, by market capital, as listed on the London Stock Exchange.
• US Tech 100 (NASDAQ 100): Measures the performance of the 100 biggest non-financial companies in the United States. Also referred to as the US Tech 100 due to its heavy focus on the technology sector.
• Japan 225 (Nikkei 225): A price-weighted index covering 225 of Japan’s largest companies.

World indices cover a wider range of companies than when trading individual assets, so there are numerous factors that can have an effect on their performance. For example, the FTSE 100 has a high proportion of commodity stocks, so commodity prices can have a huge bearing on that particular index.

Changes to a company’s structure can also have an impact on its market capitalisation or share price, which may have a knock-on effect on the performance of the index.

Business’ financial results can have a direct bearing on their share prices, so traders will monitor those closely, while economic and geopolitical developments have also been known to impact certain global indices.

Mastering index trading is no easy feat but with careful analysis, a robust strategy and an ability to assess the risks and rewards, you’ll put yourself in a much stronger position.

It’s vital to identify your goals and form a plan that will help you achieve them. You should always attempt to manage your expectations and avoid making emotional or irrational decisions. Use your research to inform your choices and build a strategy that allows you to safeguard against any potential losses. That will enable you to tackle index trading in the UAE with greater confidence.