CFD Indices Trading
CFD indices trading allows the speculation upon the performance of stock markets or industries as a whole. This article will discuss what indices are, what CFD trading is, top brokers and how to get started. Find out how to start trading CFD indices today.
Best CFD Indices Trading Brokers
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1
Interactive Brokers
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$0$1001:50FCA, SEC, FINRA, CFTC, CBI, CIRO, SFC, MAS, MNB, FINMA, AFMStocks, Options, Futures, Forex, Funds, Bonds, ETFs, Mutual Funds, CFDs, CryptocurrenciesTrader Workstation (TWS), IBKR Desktop, GlobalTrader, Mobile, Client Portal, AlgoTrader, OmniTrader, TradingView, eSignal, TradingCentralCheque, ACH Transfer, Wire Transfer, Automated Customer Account Transfer Service, TransferWise, Debit CardUSD, EUR, GBP, CAD, AUD, INR, JPY, SEK, NOK, DKK, CHF, AED, HUF -
2
RedMars
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
€2500.01 Lots1:30 (Retail), 1:500 (Pro)CySEC, AFMCFDs, Forex, Stocks, Indices, Commodities, CryptosMT5Credit Card, Wire Transfer, Debit Card, Sticpay, FasaPay, Bitcoin Payments, Trustly, PayPal, Skrill, Neteller, Klarna, Mastercard, VisaUSD, EUR -
3
IQCent20% to 200% Deposit Bonus
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$250$0.011:500IFMRRCBinary Options, CFDs, Forex, Indices, Commodities, CryptoOnline Platform, TradingViewCredit Card, Debit Card, Wire Transfer, Bitcoin Payments, Ethereum Payments, Visa, MastercardUSD, EUR -
4
UnitedPips40% Deposit Bonus
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$100.01 Lots1:1000IFSACFDs, Forex, Precious Metals, CryptoUniTraderPayPal, Credit Card, Debit Card, Perfect Money, Bitcoin Payments, Ethereum PaymentsUSD -
5
Capitalcore40% Deposit Bonus up to $2,500
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$100.01 Lots1:2000IFSAForex, Metals, Stocks, Cryptos, Futures IndicesWebTrader, ProEthereum Payments, Mastercard, Visa, Perfect Money, Bitcoin Payments, Debit Card, Credit Card, PayPalUSD -
6
Sage FX$1,500 trading competition
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$100.01 Lots1:500PendingForex, indices, cryptosTradeLockerCredit Card, Visa, Mastercard, Bitcoin Payments, Ethereum PaymentsUSD, EUR, GBP, CAD, AUD -
7
Videforex20% to 200% Deposit Bonus
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$250$0.011:500Binary Options, CFDs, Forex, Indices, Commodities, CryptoTradingViewSkrill, Perfect Money, Bitcoin Payments, Neteller, Credit Card, Visa, Mastercard, Ethereum PaymentsUSD, EUR, GBP, AUD, RUB -
8
xChief$100 No Deposit Bonus
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$100.01 Lots1:1000ASICCFDs, Forex, Metals, Commodities, Stocks, IndicesMT4, MT5Wire Transfer, Bitcoin Payments, Credit Card, UnionPay, Skrill, Neteller, WebMoney, Perfect Money, Debit Card, Ethereum Payments, FasaPay, VoletUSD, EUR, GBP, JPY, CHF -
9
Plexytrade120% Cash Welcome Bonus
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$500.011:2000CFDs, Forex, Indices, Stocks, Commodities, CryptoMT4, MT5Bitcoin Payments, Ethereum PaymentsUSD, EUR -
10
InstaTrade
Ratings/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5/ 5
$10.011:1000BVI FSCFISP, CFDs, Forex, Stocks, Indices, Commodities, Cryptos, FuturesInstaTrade Gear, MT4Visa, Mastercard, Wire Transfer, Credit Card, Debit Card, Bitcoin Payments, Ethereum PaymentsUSD, EUR, RUB
Here is a short overview of each broker's pros and cons
- Interactive Brokers - Over 8,000 CFDs are offered on a vast array of instruments, encompassing stocks, indices, forex, and commodities. Moreover, the TWS platform lends itself to seasoned day traders, offering a comprehensive selection of over 100 order types and algorithms, alongside premium market data sourced from reputable sources such as Reuters and Dow Jones.
- RedMars - RedMars caters to various short-term trading styles across popular asset classes, including 7 commodities, 14 indices, and 120+ stocks. Leverage is available up to 1:30 (retail) and 1:500 (pro), amplifying results. However, there is no calculator to help with understanding margin requirements and the depth of investments is limited.
- IQCent - CFDs are available on forex, indices, commodities and cryptos, although the range of 100+ instruments is limited compared to alternatives such as Quotex with 400+. Leverage is available up to 1:500 but the $250 minimum deposit is noticeably higher than competitors.
- UnitedPips - UnitedPips supports CFD trading on a narrow selection of currencies, metals and cryptos. It somewhat compensates for the meagre asset range with high leverage up to 1:1000, seriously amplifying potential profits or losses, and spreads that don’t change with market conditions.
- Capitalcore - The range of CFDs at Capitalcore is narrow, with 6 precious metals, 6 indices, and a slim suite of stocks. Notably, there are no commodities such as oil or gas and spreads vary greatly. Tiered leverage is available depending on the account, from 1:100 to 1:2000.
- Sage FX - Trade CFDs on forex, stocks, metals, energies, indices, cryptos and dollar futures. Sage FX offers tight spreads and high leverage on all instruments from 1:100 to 1:500.
- Videforex - Videforex CFDs are available on forex, indices, cryptocurrencies and commodities with up to 1:500 leverage and tight spreads from near zero. CFDs incur a commission fee of 1%–2.5% and up to 5% for leveraged trades.
- xChief - You can trade a competitive range of CFDs encompassing crypto, indices, energies and metals, with very high leverage up to 1:1000. ECN pricing is available, with spreads from 0.0 pips and low commissions from $2.50. A Cent account is also available for those on a smaller budget.
- Plexytrade - Plexytrade offers a modest selection of CFDs, providing opportunities to speculate on upward/downward price movements across 15 indices, 48 US stocks, 3 commodities, 4 metals, and 5 cryptos. The free margin calculator allows you to work out how much you need to put down to open and maintain leveraged positions.
- InstaTrade - InstaTrade offers the flexibility to trade CFDs across various markets, from stocks and indices to forex and commodities. Where it excels is its dynamic leverage up to 1:1000, amplifying potential returns and losses with negative balance protection preventing accounts from falling below zero.
CFD Indices Trading Comparison
| Broker | CFD Leverage | Minimum Deposit | Minimum Trade | Regulators |
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1:50 | $0 | $100 | FCA, SEC, FINRA, CFTC, CBI, CIRO, SFC, MAS, MNB, FINMA, AFM |
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1:30 (Retail), 1:500 (Pro) | €250 | 0.01 Lots | CySEC, AFM |
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1:500 | $250 | $0.01 | IFMRRC |
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1:1000 | $10 | 0.01 Lots | IFSA |
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1:2000 | $10 | 0.01 Lots | IFSA |
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1:500 | $10 | 0.01 Lots | Pending |
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1:500 | $250 | $0.01 | - |
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1:1000 | $10 | 0.01 Lots | ASIC |
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1:2000 | $50 | 0.01 | - |
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1:1000 | $1 | 0.01 | BVI FSC |
Interactive Brokers
"Interactive Brokers is one of the best brokers for advanced day traders, providing powerful charting platforms, real-time data, and customizable layouts, notably through the new IBKR Desktop application. Its superb pricing and advanced order options also make it highly attractive for day traders, while its diverse range of equities is still among the best in the industry."
Christian Harris, Reviewer
Interactive Brokers Quick Facts
| FTSE Spread | 0.005% (£1 Min) |
|---|---|
| GBPUSD Spread | 0.08-0.20 bps x trade value |
| Stocks Spread | 0.003 |
| Leverage | 1:50 |
| Regulator | FCA, SEC, FINRA, CFTC, CBI, CIRO, SFC, MAS, MNB, FINMA, AFM |
| Platforms | Trader Workstation (TWS), IBKR Desktop, GlobalTrader, Mobile, Client Portal, AlgoTrader, OmniTrader, TradingView, eSignal, TradingCentral |
| Account Currencies | USD, EUR, GBP, CAD, AUD, INR, JPY, SEK, NOK, DKK, CHF, AED, HUF |
Pros
- While primarily geared towards experienced traders, IBKR has made moves to broaden its appeal in recent years, reducing its minimum deposit from $10,000 to $0.
- The TWS platform has clearly been built for intermediate and advanced traders and comes with over 100 order types and a reliable real-time market data feed that rarely goes offline.
- The new IBKR Desktop platform takes the best of TWS while adding bespoke tools like Option Lattice and Screeners with MultiSort to create a genuinely impressive trading experience for day traders at every level.
Cons
- Support can be slow and frustrating based on tests, so you might find it challenging to reach customer service representatives promptly or encounter delays in resolving issues.
- TWS’s learning curve is steep, and beginners may find it challenging to navigate the platform and understand all the features. Plus500's web platform is much better suited to new traders.
- You can only have one active session per account, so you can’t have your desktop program and mobile app running simultaneously, making for a sometimes frustrating trading experience.
RedMars
"RedMars is the best fit for experienced day traders familiar with the MetaTrader 5 platform and based in the EU, where the broker is authorized by the CySEC. However, the threadbare education and research tools make it unsuitable for beginners."
RedMars Quick Facts
| FTSE Spread | 15 |
|---|---|
| GBPUSD Spread | 0.7 |
| Stocks Spread | Variable |
| Leverage | 1:30 (Retail), 1:500 (Pro) |
| Regulator | CySEC, AFM |
| Platforms | MT5 |
| Account Currencies | USD, EUR |
Pros
- The broker is one of a limited number of firms to offer an account specially designed for VIPs with premium support and invites to exclusive events
- Clients in the EU, in particular, can trade with peace of mind knowing RedMars is authorized by the CySEC with up to €20K compensation available through the ICF in the event of bankruptcy
- The broker supports a range of flexible payment methods, including wire transfers, credit cards, e-wallets, and notably cryptocurrencies
Cons
- RedMars falls short for newer traders, with little in the way of education, no beginner-friendly platform, a steep minimum deposit, and inadequate support during testing
- While RedMars' spreads are within industry averages, they don't offer a significant edge over the cheapest day trading brokers we've personally used, notably IC Markets
- With just 300 instruments, RedMars offers a narrow trading environment, particularly compared to category leaders like BlackBull Markets which offers 26,000 assets
IQCent
"IQCent will appeal to day traders looking for a straightforward binary options and CFD trading platform with low fees, a range of accounts, and copy trading. Getting started takes less than 1 minute and a $250 deposit. "
IQCent Quick Facts
| Bonus Offer | 20% to 200% Deposit Bonus |
|---|---|
| FTSE Spread | 1.4 |
| GBPUSD Spread | 0.8 |
| Stocks Spread | N/A |
| Leverage | 1:500 |
| Regulator | IFMRRC |
| Platforms | Online Platform, TradingView |
| Account Currencies | USD, EUR |
Pros
- Keen traders can take part in trading contests with cash prizes
- The proprietary terminal offers TradingView-powered charts which deliver dozens of technical indicators and studies
- The broker's 24/7 customer support is fast and reliable, responding within 1 minute during tests
Cons
- The broker is not overseen by a respected regulator, though this is common among binary options firms
- There's no automated trading support for algo traders
- The market analysis is very basic with limited technical summaries and insights from analysts
UnitedPips
"UnitedPips is ideal for traders seeking leveraged trading opportunities, the security of fixed spreads, and the flexibility to deposit, withdraw, and trade cryptocurrencies - all in one sleek TradingView-powered platform."
UnitedPips Quick Facts
| Bonus Offer | 40% Deposit Bonus |
|---|---|
| FTSE Spread | NA |
| GBPUSD Spread | 1.3 |
| Stocks Spread | NA |
| Leverage | 1:1000 |
| Regulator | IFSA |
| Platforms | UniTrader |
| Account Currencies | USD |
Pros
- UnitedPips offers impressive leverage up to 1:1000 with zero swap fees or commissions, which can enhance potential returns for day traders and swing traders looking to control prominent positions with less capital.
- Although being handed off mid-chat due to shift changes during testing was frustrating, customer support is generally good with quick, helpful responses, and 24/7 support via phone and email for regional teams is a definite advantage.
- UnitedPips’ platform performs well, with an intuitive design that will appeal to beginners, while the TradingView integration delivers powerful charting tools without overwhelming users, making it straightforward to execute trades efficiently.
Cons
- UnitedPips' selection of tradable instruments is still minimal, comprising a bare minimum selection of forex, metals and crypto. There are no equities, indices or ETFs, which may be a drawback for experienced traders looking for diverse opportunities.
- Unlike brokers such as IG, UnitedPips is an offshore broker not regulated by any 'green tier' financial authorities, raising concerns for traders seeking assurance and protection under well-established regulatory frameworks.
- UnitedPips lacks comprehensive research, while the educational content for beginner traders is woeful. Compared to brokers like eToro, which offers tutorials, webinars, and advanced courses, UnitedPips offers minimal resources to help new traders understand key concepts.
Capitalcore
"The major selling points of Capitalcore are its high leverage options up to 1:2000 and zero commission or swap fees. However, its weak regulatory oversight from the IFSA and non-existent education place it far behind the top brokers."
Capitalcore Quick Facts
| Bonus Offer | 40% Deposit Bonus up to $2,500 |
|---|---|
| FTSE Spread | 25 |
| GBPUSD Spread | 0.5 |
| Stocks Spread | 1.5 (Apple) |
| Leverage | 1:2000 |
| Regulator | IFSA |
| Platforms | WebTrader, Pro |
| Account Currencies | USD |
Pros
- Capitalcore is one of the only brokers to charge zero swap fees, which may appeal to Islamic traders looking to comply with Islamic Finance.
- Unlike most brokers, Capitalcore offers an unlimited demo account that takes under 5 minutes to open.
- The Capitalcore platform provides comprehensive charting tools and a wide range of 150+ technical indicators, ideal for detailed market analysis.
Cons
- The web platform was inconsistent during testing, with occasional technical glitches that meant the trading platform wouldn’t load.
- Platform support is limited to proprietary software, so there's no integration with the market-leading MetaTrader or cTrader, which offer built-in economic news and support automated trading.
- Capitalcore is not regulated by major financial authorities and has an unproven reputation, raising concerns about the safety of client funds.
Sage FX
"Sage FX will suit forex traders looking for high leverage and ECN spreads. The broker's prop trading service will also appeal to users looking for funded accounts with up to $200K available."
Tobias Robinson, Reviewer
Sage FX Quick Facts
| Bonus Offer | $1,500 trading competition |
|---|---|
| FTSE Spread | 5.0 |
| GBPUSD Spread | 0.9 |
| Stocks Spread | N/A |
| Leverage | 1:500 |
| Regulator | Pending |
| Platforms | TradeLocker |
| Account Currencies | USD, EUR, GBP, CAD, AUD |
Pros
- Prop trading accounts with multiple funding tiers
- Flexible accounts with STP and ECN solutions available
- Low starting deposit from $10
Cons
- Not regulated by any reputable body
- Lacks educational resources and other extra features
- Relatively narrow range of asset classes
Videforex
"Videforex will serve traders looking for a no-frills, easy-to-use platform to speculate on the direction of popular financial markets through binaries. With a sign-up process that takes a matter of minutes and a web-accessible platform, getting started is a breeze. "
Videforex Quick Facts
| Bonus Offer | 20% to 200% Deposit Bonus |
|---|---|
| FTSE Spread | Floating from 0.2 |
| GBPUSD Spread | Floating from 0.1 |
| Stocks Spread | NA |
| Leverage | 1:500 |
| Platforms | TradingView |
| Account Currencies | USD, EUR, GBP, AUD, RUB |
Pros
- Traders can earn up to 98% payouts on 100+ assets with the broker’s binary options, bringing it in line with competitors like IQCent.
- Videforex is one of the few brokers with 24/7 multilingual video support, providing comprehensive assistance for active traders.
- Videforex regularly runs trading contests, offering practice opportunities and cash prizes to beginners and experienced traders, with position sizes from just ¢0.01.
Cons
- The absence of any educational tools is a serious drawback for newer traders who can find blogs, videos and live trading sessions at category leaders.
- Videforex lacks authorization from a trusted regulator, meaning traders may receive little to zero safeguards like segregated client accounts.
- The client terminal needs improvements based on our latest tests, sporting sometimes slow and unresponsive widgets which could dampen the experience for day traders.
xChief
"xChief continues to prove popular with investors looking to trade highly leveraged CFDs on the popular MetaTrader platforms. The broker's rebate scheme and investment accounts will particularly appeal to seasoned traders. However, the lack of top-tier regulatory oversight is a major drawback."
xChief Quick Facts
| Bonus Offer | $100 No Deposit Bonus |
|---|---|
| FTSE Spread | 70 |
| GBPUSD Spread | 0.9 |
| Stocks Spread | 50 |
| Leverage | 1:1000 |
| Regulator | ASIC |
| Platforms | MT4, MT5 |
| Account Currencies | USD, EUR, GBP, JPY, CHF |
Pros
- The broker offers several account types to suit different traders, including a Cent account for beginners and pro-level hedging/netting accounts
- The low minimum deposit of $10 will appeal to beginners, as well as the beginners’ guides in the Library
- The broker offers a turnover rebate scheme geared towards active investors, as well as trading credits and several other occasional bonuses
Cons
- xChief is an offshore broker with weak regulatory oversight from the VFSC, so traders will receive limited safeguards
- The Classic+ and Cent accounts provide access to fewer instruments than the other account types, at 50+ and 35+, respectively
- The total range of 150+ assets is much lower than most competitors who typically offer hundreds
Plexytrade
"Plexytrade is a newcomer in the brokerage scene with attention-grabbing features like 1:2000 leverage, zero spreads on select instruments and fast execution speeds of less than 46 milliseconds. However, the absence of regulation is a significant concern, while the non-existent research and educational tools place it far behind industry frontrunners."
Plexytrade Quick Facts
| Bonus Offer | 120% Cash Welcome Bonus |
|---|---|
| FTSE Spread | 0.8 |
| GBPUSD Spread | 0.8 |
| Stocks Spread | 5 |
| Leverage | 1:2000 |
| Platforms | MT4, MT5 |
| Account Currencies | USD, EUR |
Pros
- There are various VPS packages starting from $50 per month, but they become complimentary once specific deposit thresholds are reached.
- Despite lacking regulation, Plexytrade provides negative balance protection and reinforces safety protocols by holding client funds in segregated accounts.
- Plexytrade accommodates a range of trading methods and short-term strategies, including scalping, hedging, and automated trading.
Cons
- Deposits and withdrawals are exclusively facilitated through cryptocurrencies, as Plexytrade does not support bank cards, bank wire transfers, or e-wallets.
- There are no research and educational materials, falling short of alternatives like IG, while access to the economic calendar is restricted to clients with balances of $500.
- With around 100 instruments, Plexytrade restricts the flexibility of investors who prefer to trade across various assets, especially compared to Blackbull with its 26,000 securities.
InstaTrade
"Although InstaTrade offers active trading on a comprehensive platform, it stands out with its fairly unique Fixed Income Structured Product (FISP), providing passive investment opportunities with up to 50% returns in 6 months if conditions are met. "
InstaTrade Quick Facts
| FTSE Spread | 660 |
|---|---|
| GBPUSD Spread | 0.2 |
| Stocks Spread | 8 (Apple Inc) |
| Leverage | 1:1000 |
| Regulator | BVI FSC |
| Platforms | InstaTrade Gear, MT4 |
| Account Currencies | USD, EUR, RUB |
Pros
- InstaTrade TV, consisting of video interviews and valuable market insights spanning equities, cryptos and more, helps identify opportunities and inform short-term trades.
- VPS hosting caters to algo trading strategies with a dedicated physical server providing rapid execution speeds as low as 9 milliseconds.
- InstaTrade delivers an excellent suite of charting tools for day traders with its web trader comprising 250+ indicators, 11 chart types and a user-friendly design.
Cons
- Marketing of the FISP, especially phrasing around the “guarantee of profitability” and the “elimination of risks of trading on financial markets” raises concerns.
- InstaTrade sports one of the most cluttered websites and client cabinets in the industry, potentially overwhelming new traders, especially compared to XTB’s intuitive trading journey and resources.
- Profits are only guaranteed in the FISP if investors do not reach the 50% profit level and attract other users with a total sum of $4 for each dollar in compensation.
What Is An Index?
An index is a financial term for a method of tracking the performance of a market or a group of assets in a set, uniform way.
Indices can follow specific stock markets, like the ASX, or areas of economies and industries, like the top technology stocks, top non-technology stocks, etc.
Additionally, indices can encapsulate an entire market, such as the TAIEX which tracks the performance of the Taiwan Stock Market as a whole. Within finance, you cannot invest directly in an index.
Indexes may have different methods for calculating their value and weighting their constituents. Generally, an index would have a base value, e.g. 100, and a base year.
The value would then increase or decrease based on the performance of the index’s constituents.
The change in the value of an index is often more important than the value itself, as that indicates if the market is growing or not.
Popular Indices
CFD indices trading is popular in markets across the world. Some of the most commonly-traded indices include:
FTSE 100
The FTSE 100 is a UK stock market index that tracks the performance of the shares of the best 100 enterprises listed on the London Stock Exchange (LSE).
Note, just because the index tracks London Stock Exchange-listed stocks, that doesn’t mean that only UK-based companies can be found there. This index is maintained by the FTSE Group, which is a subsidiary of the London Stock Exchange Group. The FTSE 100 is one of the most popular instruments for CFD indices trading.
NASDAQ 100
This is a US index of the 100 largest non-financial companies that are listed on the NASDAQ stock exchange. The weights of stocks in the index are based on their market capitalisations, with rules implemented to cap the influence of the larger listed securities. You can find an index consisting only of the financial companies in a separate index called the NASDAQ Financial-100.
Dow Jones
This is a US index of the largest 30 companies that are listed on the New York Stock Exchange (NYSE).
S&P 500
This is a US index of the 500 companies that have the largest market capitalisation. This is favoured for CFD indices trading as it tracks a massive portion of the US economy.
DAX
This is a German index that tracks the performance of the largest 40 companies listed on the Frankfurt Stock Exchange. Although not as big a market as some others, it remains quite popular for CFD indices trading due to more regular market movements.
Why Are Indices Suitable For CFD Trading
CFD indices trading involves speculating on some of the best-performing companies in global markets. This provides diversified exposure to the underlying market without having to invest in individual companies, spreading the risk.
This in turn means that there is a reduction in the possibility of wild market movements in reaction to sudden news releases.
In addition, as an investor, you do not have to carry out as much in-depth technical analysis of individual companies when CFD indices trading.
Your investment will likely be spread over several industry sectors, reducing the stress of having to manually identify potential stocks worth looking into.
Moreover, CFD indices trading is possible throughout the day and is not necessarily limited to normal stock trading hours.
Pros
- Your positions are naturally spread across multiple industries and companies, diversifying your investment and reducing the possibility of drastic instability.
- Returns are measured on the performance of the index as a whole instead of any particular stocks, meaning that the trade wins or loses based on the performance of all of the listed stocks on the index.
- You can “short” an index if its overall performance is in decline, allowing you to still speculate on bearish markets.
- CFD indices trading allows you to speculate upon different global markets as a whole, rather than individual stocks, which requires much less in-depth research.
Cons
- You do not own any of the stocks listed within the particular index in which you open a CFD position.
- Although the performance of the index you speculate against is not majorly influenced by any single company and is more stable than trading individual stocks, the index value could still undergo drastic changes. It is a real possibility that you could lose more than you invest if trading on margin, so great caution needs to be taken.
- CFD indices trading is not supported in all countries. For example, the USA has banned all CFD trading.
Strategies
Follow The News
Before deciding what index you want to speculate upon using CFD indices trading, keeping yourself up-to-date on the latest financial news is paramount.
Changes in local laws can have a huge effect on any indices based in the area and being able to spot where the market is likely to head will place you in a better position to make the right choices.
More importantly, this will allow you to stay aware of possible future movements, reducing the chances of the market catching you off guard.
Hedging
Since CFD indices trading allows you to sell (“short”) the index, it is often used to hedge existing investments.
If your portfolio consists of several stocks from the same index and you expect there to be a sudden decline in the market, you can short the index with CFDs to offset the losses you would see from your main investment, reducing your downside exposure.
Check that your broker permits hedging prior to trading.
How To Start CFD Indices Trading
Choosing A Broker
To begin your CFD indices trading journey, you must first find a CFD broker that offers the right instruments. When doing your research, it is helpful to consider the following points:
- Leverage Rates: If you have a particular index in mind, you should investigate and compare the margin trading conditions offered. The lower the margin, the lower the required initial investment.
- Spreads: CFD indices trading brokers often make money from the spreads that they offer to you. The lower the spread, the lower the price movement you need to cover the trade cost.
- Reputation: The reputation of a broker is important when dealing with CFD indices trading, given that certain countries have limited regulations for this kind of trading. Is the broker well known? Have they had any reported issues with their platform before?
- Customer Support: The last thing that an investor wants is not being able to access their funds or make decisions on their positions due to errors with the platform. Customer support should not be overlooked, some brokers even offer 24/7 support.
- Fees: There can be many fees associated with CFD indices trading, such as overnight holding charges and transaction fees. Compare the costs of using each broker and try to consider them against your trading approach.
There are lots of different brokers that can offer you CFD indices trading on commercial or proprietary platforms, including City Index and Fineco Bank. Choosing the right broker could mean the difference between success or failure when CFD indices trading, see our list of top recommendations here.
Opening Your Position
As a rule of thumb, you should never invest more than you are comfortable losing. Most CFD indices trading platforms are easy to use, and entering/exiting your position is quick and simple. You will be presented with the options to buy (long) or sell (short) your chosen index.
Going long when CFD indices trading means that you expect the value rise to rise while going short is the position to take when you expect price drops. Most broker platforms offer you extensive information about different instruments, showcasing their data history to help inform your decisions.
Monitoring Your Position
You should keep a close eye on your positions once you open them, putting in place automated exit strategies if possible. If you think that your position is going to start failing, you should exit it to avoid losses. Some platforms allow you to place automated limits, called stop orders, which, once hit, will exit your position for you.
However, the negative balance protection offered by brokers is less a guarantee than a target, as severely unfavourable trading conditions, often coupled with lots of leverage, can still result in you losing a lot of money. Rapid and volatile changes in the market can sometimes be too quick for loss prevention strategies to react to.
Tips For CFD Indices Trading
Here are some useful tips that could help you during your CFD indices trading journey.
- Use stop losses and take profits to limit your losses.
- If you hold a stake in a given index through owning stocks in companies listed on there, consider hedging during times of poor market performance to offset any of your losses.
- Don’t invest more than you can handle losing.
- Be wary of using high leverage rates as, while profits are increased, losses are magnified.
Final Word On CFD Indices Trading
CFD indices trading is a great way for retail traders to access the indices markets without needing to physically invest in funds and trackers, simply making money from correct speculation of an index’s price movements. Leveraged trading is offered by most CFD brokers and allows profits to be magnified and markets to be accessed for less capital, though losses are also amplified. If you wish to begin CFD indices trading, check out our top CFD brokers.
FAQs
How Do CFDs Work?
CFD indices trading allows investors to speculate on the future performance of a market without needing to own the particular asset. CFDs are often more accessible than spot products and traders can trade in both bullish and bearish markets.
What Is An Index?
An index is a financial term for a method of tracking the performance of a market or a group of assets in a particular set. CFD indices trading involves taking out the derivatives contracts on index trackers.
What Is Going Long/Short When CFD Indices Trading?
When you buy “long”, you are predicting that the index will go up in value. When you sell “short”, you are predicting the opposite, that the index is going to decrease in value. If your predictions are correct, you will make money on your trade, and vice versa if you are wrong.
Are Trading Hours the Same Across All CFD Indices Trading Instruments?
No. CFD indices trading hours vary from index to index. Some indices may be 24-hours, while others follow the opening hours of the equities markets they are based on.
Do I Have To Pay Stamp Duty On My CFD Index Trades?
No, CFD indices trading is exempt from stamp duty in the UK. However, other countries may have different taxation policies, you can check out our CFD taxes page for an overview, though it is recommended you speak to a qualified advisor before making any tax-related financial decisions.