- Index is the most tracked instrument by all market participants.
- Index survives even if the company is shut as new companies have replaced the role in the economy.
- Index can be used to Hedge the investment based on portfolio beta calculation.
- The correlated index allows Index trader to make strategies and adjustments in both indices as a striker and non-striker batsman.
- Far expiries contracts are also liquid for index, so applying calendar spread strategy gets easy.
- A trader wastes most of his energy in catching the direction of stocks whereas an index trader efficiently uses his energy to make a strategy for deployment.
- All companies, institutions reports and even sitting government performances are benchmarked with index view.
- Largest traded and liquid instrument in the market. (BankNifty, Nifty)
- Index traders learn to create a state of mind that is not affected by individual stock’s behavior.
A person’s trades and investment in stocks are biased due to their understanding of companies and products of the company which tampers his decision making.
However, an Index trader doesn’t hold such biases for long (obviously country bias exists) so doesn’t tamper his trade.
- An Index Trader usually has many entries and exits reflecting his fresh views whereas a trader may not sell his investment when in the loss.
Rollover nature and multiple expiries also restrict an Index trader to hold his biases.
- Media commentary on the index is higher than any company commentary, even the industry leaders or the trolled one’s.
“Do more of what works and less of what doesn’t.” – Steve Clark
Author: Deepanshu Jain and Pranay Agarwal