Artificial Intelligence Index
City Index has created and launched an index that tracks the performance of 11 stocks associated with “Generative AI”.
The index is cap-weighted, so the larger members within the basket should, in theory, have a bigger influence on its pricing.
The makeup of the index will be reviewed quarterly, on the third Friday of the month. The current basket of stocks includes Nvidia, Plantir, and Altair Engineering.
Clients will be able to trade long and short on the index during regular US trading hours. They can expect to see a bid-offer spread of 6 points and variable margins, depending on position size. Such that the larger your position, the lower your leverage and the higher your margin will be.
Given its trillion-dollar market cap won’t the AI Index just track Nvidia?
With a market cap-weighted makeup in the artificial intelligence index, it would be easy to assume that it would just track the price movements of the largest constituents.
However, using the City Index Web Trader platform it’s possible to draw a three-month chart, that compares the AI Index CFD with Nvidia, the stock that has driven the 2023 AI boom.
Interestingly although there is a correlation between the two instruments, the AI Index has not slavishly followed Nvidia over the last three months, and that suggests that there could be arbitrage or spread trading opportunities to be had.
Thematic baskets and indices such as these are useful asset allocation tools and they allow traders to instantly get broad-brush exposure to specific trends or themes in the market. Traders can trade these baskets in isolation, or via pairs trades against another basket or constituent within the individual baskets.
For example, if you wanted to isolate the influence of Nvidia from the AI Index CFD you could go long the basket and short of Nvidia or vice versa.
No doubt we will see the introduction of more thematic and sector-oriented products from margin trading brokers as they seek to keep their end customers interested and their offerings relevant.
That is surely a good thing because it creates choice and opportunity for retail traders.