Trading is a basic economic concept that involves the exchange of goods and services for money. It is important to recognize the inherent risks associated with trading, which is why participants seek ways to minimize costs and diversify their portfolios. Index trading does exactly this. Learn how to diversify your portfolio with the GTi12 Index in this article.
Indices in General
Before taking a closer look at the benefits of index trading, let’s first explain what indices really are. Indices are a collection of instruments. It may be a basket of stocks, commodities, currencies, or cryptocurrencies. Tracking the fluctuation of prices of an industry or sector, indices can be traded speculative, can be seen as investment opportunities, or as a tool of analysis to better understand the corresponding market. Examples include the popular Standard and Poor’s 500, or else (S&P 500), and the Financial Times Stock Exchange 100, known as (FTSE 100). Both are share indices, including those US companies with the highest market capitalization. Another such example is the US Tech 100, (US100), which as the name suggests includes the top 100 performing US technology companies.
Trading Indices
There are two ways to trade Indices: through Spot (Futures trading) or CFDs (Contracts for difference). Those trading more frequently, usually prefer CFDs, either CFDs on Cash or CFDs on futures.
CFDs allow investors to speculate on the price movement of the index, without owning the underlying assets, which allows them to profit on both rising and falling markets. The main differences lie in the cost of rollover and holding the position overnight. Cash CFDs do not have any overnight swap charges but are subject to rollover charges when the underlying asset is due to expire.
On the other hand, investors and long-term position traders prefer trading futures contracts on the Spot market.
FXGT.com’s GTi12
FXGT.com’s experts combined their knowledge, expertise, and vision to create and offer the GTi12 Index. As the name suggests, the GTi12 index is made up of a basket of 12 Cryptocurrencies. At the time of writing this article, the Index consists of:
BTC (Bitcoin), ETH (Ethereum), XRP (Ripple), LTC (Litecoin), SOL (Solana), BTH (Bitcoin Cash), XLM (Stellar), DOT (Polkadot), BNB (Binance Coin), TRX (Tron), MAT (Polygon), and ADA (Cardano).
GTi12 Calculations
Traditional indices typically use price-weighted calculations, which rely on simple arithmetic means to track price movements. In contrast, GTi12 utilizes the geometric mean method, also known as the compound rate of return, for its calculations. In the formation of the Index, all cryptocurrencies have an equal impact on price.
To ensure that current market sentiment is reflected, updates get implemented on a quarterly basis, where the Index gets reviewed and re-evaluated, for a wide range of variables and factors. These include metrics such as market cap, ranking and liquidity to name a few, as determined by FXGT.com’s applied formula.
GTi12 Trading Specific Advantages
The GTi12 is traded like any other CFD on futures. Investors can speculate on the price movement of the index, without owning the underlying assets, allowing them to profit from both rising and falling markets. Swaps are charged for holding the position overnight but are not subject to rollover charges as the underlying asset is not subject to expiry. Low spreads are applicable and a leverage of up to 1:100 is offered.
Continue reading to uncover the specific advantages of trading the GTi12 Index.
1. Avoid coin specific risk
The main benefit of trading the Gti12 index is that one can gain exposure to the cryptocurrency market, without having to rely on analysing the performance of any individual CFD cryptocurrency. Let us assume that one decides to do so. The biggest challenge faced is to identify which one to choose. The issue gets solved by looking at the cryptocurrency sector as a whole, taking a position at GTi12, thus achieving a natural diversification.
2. Speculating long and short or hedging risk
Being able to trade both sides of the spectrum, long and short, is surely a great feature appreciated by speculators. However, it offers an even bigger advantage to those who want to protect their existing positions as part of portfolio management. As an investor, whether individual or institutional, you may have a large collection of cryptocurrencies. Imagine, you anticipate that the market will experience a substantial correction, possibly due to regulatory restrictions. However, you remain optimistic that the decline in prices will only be temporary and that a recovery will occur in the upcoming months. While one option would be to just hold on to the portfolio, a better option would be to hedge risk by selling GTi12. While the market goes down, profits can be booked in GTi12, and these profits may help reduce the average cost of holding initial positions. By the end of the “correction” period, everything will get better!
3. Can be traded with lower margins
Margin requirement on trading CFDs indices is considerably lower than in spot trading. This offers a greater profit potential, but also greater risks. Although making purchases on margin amplifies the effects of losses and profits on the initial account, lower margin requirements make it a great tool if used properly.
4. Liquidity is high, spreads and costs are low
Quite often we see liquidity issues in specific CFD cryptocurrencies in the spot market. On the contrary, CFDs in general do not face liquidity risk. The same applies for GTi12. As a result, the bid-ask price spreads are also very narrow. This makes trading in GTi12 cost-effective and safe as it is highly unlikely to encounter liquidity issues while trading GTi12.
5. GTi12 as a diversification tool
This point is related to risk reduction but has a slightly opportunistic tilt. Let’s say one is holding a portfolio of cryptocurrencies that is predominantly tilted in favor of Bitcoin. The market is on the verge of experiencing a significant surge due to anticipated positive news. While buying Bitcoin in the spot market is one option, this decision will lock up funds in case this ends up being a short-term opportunity. A better way would be to buy GTi12 as part of the portfolio. This would help structurally diversify the existing portfolio with minimal capital requirements, limiting investment outlay and risk.
Bottom line
Concluding, indices offer a simple and effective way to track and monitor the market’s overall health and growth. These indices rely on statistical data and technical analysis to help us understand the current market conditions. Additionally, examining historical price data can give investors and traders valuable insights into how markets have responded to past news and events. This historical perspective can be a valuable tool for making informed decisions in the future.
In summary, indices provide benefits beyond just trading. These advantages come together in FXGT.com’s GTi12, a unique cryptocurrency index. GTi12 is a one-of-a-kind cryptocurrency Index that acts as an excellent tool for diversification and risk management, making it a valuable product for investors looking to navigate the cryptocurrency market confidently.
Ready to diversify your cryptocurrency portfolio and explore the benefits of GTi12 Index trading? Take the first step towards confident and informed trading with FXGT.com.Open an account with FXGT.com or log in to explore the world of CFD crypto trading with a global broker.