Index trading involves buying and selling stock market indices such as the Nifty 50, Sensex, or Dow Jones instead of individual stocks. It allows traders to speculate on the overall market performance rather than a single company. Since indices represent a group of top-performing stocks, index trading offers diversification, lower risk, and high liquidity. It is commonly done through derivatives like futures and options, making it a popular choice for both short-term traders and investors.