Since each index represents a group of
securities, bonds, or commodities, indices trading offers an easier way to gain exposure
to the segment a trader is interested in rather than investing in individual stocks,
bonds or commodities. As most indexes relate to a broad market, a trader does not need
to learn about each security and all the factors that influence their price.
Indices cannot be manipulated. Since an index
comprises of not one but several stocks or assets, it is difficult for one or a handful
of traders to manipulate it. To influence the price of an index, a trader would need to
invest in each of its components.
Indices trading is less risky than investing
in an individual stock or commodity. The inclusion of several stocks or commodities in a
single index helps diversifying exposure, thereby reducing volatility. Even if the value
of one stock plummets, it cannot impact the entire index of which it is a part. Also,
the plummeting of one stock may be compensated by a rally in another constituent stock
of the same index.