If you are interested to learn how to trade indices on MT5, this article will inform you about what you need to know;
This article will;
- Explain what indices are and why you should trade them.
- Demonstrate how to trade indices on the MT5 trading platform.
- And show you how to open a trading account so you can start trading indices too.
So let’s get straight in to it.
I am not going to be talking about any indices trading strategies here. There are other articles more relevant to that topic.
What this article will help you with is to decide whether you want to trade indices on MT5 and how to do that.
You will find this article even more useful, if you already have a basic understanding of trading.
Whether trading indices exclusively or as a complement to your trading, a good place to start is to better understand what they are.
What are indices and why you should trade them
What we refer to as indices is otherwise known as an index that is made up of individual stocks. The indices performance or price is calculated from the underlying prices of the constituent stocks. So you are trading a group of stocks and if they perform well, the indices rise and if they don’t perform well, the indices falls.
It’s as simple as that,
I will explain how to create a trading account and download the platform so you can start trading them in a bit.
For now let’s take a look at some common indices you can trade on the MT5 platform.
When you open the platform,
All the symbols that are available for trading might not be populated for the first time. So the first thing to do is put them in your market watch window.
To do this, right click anywhere in the market watch window and select show all from the pop up menu that appears. If you don’t want to clutter the market watch window with symbols you are not interested in trading, then you add them one at a time. Just click symbols, and find what you are looking for.
Common indices available for trading on MT5
From here, you will see what is available for trading on MT5.
(the symbols on the MT5 trading platform might vary between brokers)
There is usually;
- The Dow Jones industrial averages
- The S&P 500 (this is the indices for the top 500 companies in the US )
- The Nasdaq
These three indices are the most widely followed stock indices from the US. The constituent stocks are some of the largest and most well-known companies in the world.
Then some top Indices from Europe.
- There is the German DAX
- The FTSE 100 for the United Kingdom
- And the Spain stock market index, or the ES35
- Japanese Nikkei which constitutes the top 225 listed on the Tokyo stock exchange.
- The Hang Seng index for companies listed on the Hong Kong stock exchange
- And the ASX200 index from Australia.
Trading these indices gives you exposure to the broader stock markets performance for the respective region.
Now, let’s dive a little deeper in to indices trading.
How to start trading indices on MT5
At this point, as long as you have an active demo or a funded live account, you can start trading indices. However there are some important things you should be aware of before doing so.
The first thing is that Indices are generally volatile. If you are used to trading forex, the level of volatility might surprise you.
The second thing is that the same lot size or volume for an indices trade compared to the same lot size for a forex trade can mean different pip values. It depends on the broker you are trading with because the minimum number of indices contracts that you can trade will vary from one broker to the next.
These two things together can result in fast profits or losses.
But, the good thing about trading indices with TIO Markets is that the contract specification has been highly fractionated. Which means you can trade one/tenth of a contract for even better risk management.
For those of you that are familiar with forex lot sizes and pip values, you won’t notice any difference.
If you are new, it is best to check the contract’s specification before you start trading.
Check the contract specification in MT5
This is how you do that.
Right click on the indices or the symbol in the market watch window and select specification from the pop up menu that appears. A screen will pop up with a full description of the symbol. This will change between brokers, so it is important to check it.
What you should be interested in are the times when this symbol is open for trading, the costs involved and how much will be bought or sold for the lot size you select to trade.
So for example,
You can clearly see at the bottom, the times that quotes will be streamed through the platform and the times that you can trade this symbol.
Check the costs involved in trading indices on MT5
For the costs involved.
It is $5 per lot for the DJ as standard and it will probably be the equivalent for the other indices. This comes down to $0 per lot on the VIP Black account, which is TIO Markets flagship account type.
I can also see that the spread is floating, which means that the spread is variable.
You can add that column in the market watch window too. Just right click anywhere in the market watch window, go to the columns option and check spread.
Now you should see the real time spread for all the symbols in the last column here. Remember, that this is being displayed in points. So 270 points is 2.7 ticks in the indices price. In the stock and indices markets, price changes are measured in terms of ticks.
Both the spread and the separate fixed commission must be taken in to account as a cost of trading. And that makes up the cost to open and close your trades.
There are other costs too and these are related to the duration of the trades. So for each trading day that you maintain your indices position, a swap fee is calculated. This is basically a financing charge, and only comes in to affect when you roll over your positions to the next trading day.
If you are a day trader and close your positions before the next trading day, swaps won’t apply. But on Friday, a 3 day swap is applied where the swap will be triple what it usually is. This is to factor in the weekend as the market is closed.
The swaps are calculated in points and the amount depends on the lot size.
I am going to talk a little more about that now.
Check the pip value for the lot size you are trading
Now, I will explain how to calculate the tick value for the lot size you are trading. This is one of the most important things you need to understand, because a mistake here can mean the difference between risking too much or too little.
The contract specification shows us a contract size of 10 and one lot or 1.0 in terms of volume on the MT5 platform is equal to trading 10 contracts of the DJ.
One tick is a full change in the indices price, and this refers to the digit before the decimal place. So if the price goes from 35,000 to 35,001, the price has moved up by one tick.
When you trade 10 contracts, it would be the equivalent profit or loss of $10 per tick that the price moves.
If this was the FTSE 100, one tick from 7,000 to 7,001 would be the equivalent profit or loss of £10.
Since the FTSE 100 is priced in terms of British Pounds and the Dow Jones is priced in terms of US Dollars.
How the indices you trade affect your profit or loss
That is also something you need to be aware of because this will affect the profit or loss you will see in your account. So if your accounts base currency is denominated in US Dollars and you trade
Indices denominated in Euro, and then your profit or loss will be calculated at the current rate of exchange between the EURO and the US Dollar.
If you trade the German DAX and your accounts base currency is denominated in EURO, then no exchange rate will apply to your profit or loss. Since both are denominated in the same currency.
You can trade fewer contracts by reducing the lot size and go as low as 1/10th of a contract. The minimum step, which you can see here as 0.01 and this is the minimum you can trade. So when you select 0.01 lots on the platform to trade, you are trading 1/10th of a contract and the tick value will be about 10 cents per tick.
This is what I was referring to earlier when I said that the indices have been highly fractionated. You can get started with a relatively small amount of money because you can trade in smaller fragments of a full contract.
Despite the leverage that is available.
And that is also important to know, how much money you need in your account to open the minimum trade size.
The contract specification says the initial and maintenance margin required is 0.01, which means 1%.
Key things to take away for trading indices on MT5
So to open 1/10th of one contract, which is the minimum, you need 1% of the value of it as margin in your trading account. For the DJ, 1/10th of a contract has a face value of about $3,500 at the current time. 1% of that is about $35 and that is how much you need to open and maintain the minimum position size.
I know, this might sound complicated if you are new but I will explain it in simple terms for you to take away.
0.1 lots in trading volume on the platform is 1 indices contract. When you trade 1 contract, a full tick in the price of the indices will be worth 1 unit of whatever currency the indices are denominated in. US indices are denominated in US Dollars, European Indices are denominated in Euro, and so on.
To open the trade, you only need 1% of the value of the contract in your account as margin.
OK, we got there and now you know.
Let me explain how to open an indices trade on MT5
Now let’s open a trade together so you can see how this all works.
There are couple ways to do this on MT5.
The first way is to simply click the new order button in the toolbar at the top of the platform. A new order window will pop up and the symbol will be set by default to whatever chart you were currently looking at. You can change this but for this example, I am going to show you how to open a trade on the Dow Jones.
Then you have a couple of options regarding the type of order that you want to execute.
Use market execution order
The first one is a market execution. What this means is that you will execute a trade at the current market price. So whatever the price is for the Dow Jones now, that is the price you will execute at.
Use pending order executions
Alternatively, you can choose to execute a pending order. There are further options available for the type of pending order here.
The first one is a buy limit. This basically means that you will set an order to buy below the current market price.
Then there is a sell limit order. This is an order to sell at above the current market price.
You also have a buy stop order. What this means is that you will set an order to buy above the current market price. So as the price rises, and triggers your buy stop order, a buy position will be executed to buy as the price is rising.
The inverse is also true for the sell stop orders. This is an order to sell at below the current market price. So as the price is falling, your sell order will be triggered if the price reaches there.
Then there is the buy stop limit order. This is simply an order to buy above the current market price at the price you specify or nothing at all. And finally, there is the the sell stop limit. This is an order to sell below the current market price at the price you specify or nothing at all.
I will use the market execution order for this example.
Select your lot size or trading volume
Now you have the option to select your lot size or the volume you will trade. The minimum is 0.01 lots. This is what I meant early when I said that the contract is highly fractionated. You can trade 1/10th of a DOW Jones contract. As previously mentioned, the volume step is 0.01 so you can modify the volume in increments or decrements of 0.01. So you can go 0.02 lots or 0.03 and so on.
0.1 lots is 1 contract of the DOW Jones and 1.0 lots is 10 contracts of the Dow Jones. Then you can set a stop loss or a take profit for the deal or you can modify that later.
These orders will close your trades in case the price moves against your speculation or to take your profit in case the price does move to a price in the direction of your speculation. They are self-explanatory.
If you want to add a comment for the deal, you can do that here but this is not commonly used.
Then you can just click sell by market or buy by market to execute the trade.
Another way of executing a trade is from the one-click trading panel in the top left hand side of the chart area. If this is not enabled, you can simply click this little icon here to enable and display it. From here you can set your volume and double click on the buy or sell panel.
Once you have executed your deal, it will open at the bottom of the platform in the trade terminal. You can close the trade by clicking the “X” icon to the far right of the deal record or you can modify the trade and set a stop loss or take profit order.
There are a couple of ways that you can do that.
How to modify your indices trade on MT5
The first way is to right click on the deal record and select modify from the pop up menu that appears.
Or, you can click hold and drag from the deals buy or the sell line that is visible on the chart.
If you click hold and drag down for a buy position, you can set a stop loss. If you click hold and drag up for a buy position, you can set a take profit.
From here, I can let the deal run its course and either the stop loss will get triggered to take me out of the market at a loss. Or the take profit will get triggered to take me out of the market at a profit.
Alternatively, you can click the “X” icon in the deal record, as previously mentioned to close the trade at will.
It is as simple as that.
Summary about trading indices on MT5
Let’s recap with a quick summary.
- Trading indices is like trading a group of stocks together. You invest or speculate on the overall performance of these stocks. If they do well, the indices price should rise and if they don’t do well, the indices price should fall.
- You can trade a variety of indices that will give you exposure to stock markets in different regions of the world. There are also fewer symbols to focus on which can make your trading more manageable than let’s say, trading individual stocks or forex. Where there are more symbols to keep track of.
- There is usually less leverage available when trading indices than there is when trading forex. This is not necessarily a negative thing because trading with higher amounts of leverage can be risky.
The good thing about trading indices with TIO Markets is that you can get started with $50 and you need less than that to open a deal with the minimum trade size.
- You can trade indices to diversify your trading or focus on them exclusively if you prefer.
- Indices are generally more volatile, compared to trading Forex. You can potentially make money faster but also lose money just as fast as well. It is important to check the contracts specification on your broker’s platform to better understand costs and the minimum trade sizes.
- Make sure you are sufficiently capitalized for the lot sizes you intent to trade.
And that just about wraps this video up.
But before, I will explain how to open your own MT5 trading account and give you a special promo code to get started.
Get a special promo code to start trading indices on MT5
Visit www.tiomarkets.com and click the register button to register a new account.
Fill out the form with all of your information and continue until you reach the client portal.
Then select open live account and choose MT5 as the platform, VIP Black as the account type and choose your accounts base currency and leverage.
Once you have done that, you should receive your log in details. Check for it because you will need that to log in to MT5.
Then head over to the download centre in the client portal and download MT5 to your computer or smartphone.
The only thing to do now is to fund your account and transfer the funds to the platform. So click deposit and choose whether you want to deposit with your local currency or crypto.
Deposits using a credit or a debit card are instant. Enter your payment information and make sure the amount is at least $500.
But before you click to make your first time deposit with TIO Markets,
Enter this promo code: OFX500.
This will get you the VIP Black account for $500, instead of the usual $3,000. This is TIO Markets flagship account type. You will be able to trade on super tight spreads and $0 in fixed commission.
The last thing that you will have to do is navigate to manage funds in the client portal and transfer your funds from your TIO Markets wallet to your VIP Black account.
That’s it, you can now start trading indies on MT5.