Stock indices are in motion. Are they worth trading short-term? And if so, in what way?

Commercial message: In recent weeks and months, we have seen very high volatility in the indices. As multiple percent daily moves become more and more common, the question becomes; how to use this current situation to your advantage? Seasonal traders of forex, commodities and other instruments certainly welcome these movements, but they can also be an interesting opportunity for new traders.

For many people, stock indexes are primarily an instrument associated with long-term investment, the majority of current investment "gurus" have been promoting regular investing in ETFs based on the S&P 500 index and others for a long time. From a long-term perspective, this is undoubtedly a valid investment strategy that statistically brings success over a long-term time horizon. However, the current situation is not very conducive to this style, The S&P 500 is now at about the same values ​​as it was two years ago, so anyone who started investing regularly in this index within the last two years,  is in the red. We know from history that the turnaround will come, as it always has before. Unfortunately, we do not know when to expect this turnaround. While this bear market may seem long, in the past periods of stagnation have sometimes lasted for years, even decades, this may really just be the beginning. In such a situation, short-term trading with a small part of the portfolio can represent a necessary alternative or diversification.

So if we decide to trade indices short-term, what does this mean for us? Trading differs in many ways from long-term investing, even in cases where we are always talking about the same index, for example the S&P 500. The main advantage is the possibility of profitability in any environment. If we buy an ETF, in most cases we are bound to the price increase, in trading, we can have successful trades when the market goes up, down or even sideways.

But there are also a number of specifications associated with this; index derivatives contain leverage, thanks to which even a short time horizon can bring large profits. On the other hand, leverage naturally increases potential losses if the market goes against us. Therefore, there is always a need for greater caution, proper money management and overall greater activity compared to passive investing.

As this topic is too extensive for one article, XTB in cooperation with Tomáš Mirzajev and Martin Stibor prepared a free e-book for those interested Strategies for short-term trading of stock indices, which explains the basics and common strategies. For beginners, there is also an opportunity to try intramural trading at XTB test accountwithout the need for full registration.