Do you want to learn how to trade index funds? When you trade index funds, you're trading more than one individual stock. An Index Fund is a type of mutual fund that is made up of a number of stocks that represent a stock index, such as the S&P 500, or the Dow Jones Industrial Average. You can also trade an index fund by selecting a specific sector such as Pharmaceuticals, Energy, and Technology, as opposed to investing in one broad index . The following steps will show how to trade index funds.
- Open an account. Before you can trade index funds, you need to open a trading account with a reputable on-line broker, or if would like guidance, you can open an account with an investment broker (see resources). On-line brokers are the cheapest way to trade index funds.
- Save money. Keep in mind that investing in an index fund is a form of passive investing, meaning there is no active management. Because of this, it's the most inexpensive form of mutual fund investing.
- Determine the index you would like to invest in. You can choose from stock index funds, bond index funds, or commodity index funds. Since there are no real advantages to any one fund, the choice is based on the investor's preference.
- Trade stock index funds. If you want to trade stock index funds, then you should consider the three major indexes: the S&P 500, the Dow Jones Industrial Average, which is made up of 30 blue chip companies, and the Russell 2000, which includes many smaller companies.
- Consider an ETF. You should also consider an index mutual fund or an exchange-traded fund (or ETF) which is an investment vehicle that is traded on a stock exchange, much like stocks. Most ETFs track an index, such as the S&P 500. ETFs are attractive as investments because of their low costs.
- Find an advisor. Remember, if you're new to trading index funds and not able to do your own research, consider seeking the advice of a financial advisor or investment broker.