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An index is a ‘group of shares’ that is traded on a centralised exchange. Think of the major
exchanges that you know such as the NASDAQ, the London Stock Exchange, or the New York Stock
Exchange. There are centralised exchanges all over the world. Indices trading or indexes trading
refer to the same thing. These widely traded performance measures assess a group of stocks, or the
Consider several popular indices:
Now that you’ve got an idea of what an index is about, let's turn our attention to CFD indices trading at Xtrade.net*
A CFD is an acronym for Contract for Difference. It is a derivative financial instrument whose price
is derived from the underlying asset being traded. In this case, it is the buying and selling of
indices. An Xtrade.net, you can buy and sell CFD indices in markets across America, Europe, Asia,
to access a full list of CFD indices at Xtrade.net. Usually, when you trade regular indices, prices
must appreciate before you can enjoy any profits. With indices CFD trading, it is possible to trade
indices in rising or falling markets.
You can also learn about
To trade an index CFD, first determine which way you believe prices are likely to move. If you are optimistic about the future price movement of the index, you buy the CFD. This means that you have an expectation of a price increase. If you are pessimistic about the future price movement of the index, you sell the CFD. This means that you have an expectation of a price decrease. Let's backtrack for a moment to explain how a CFD actually works. This contract between a trader and a broker states that the buyer must pay the seller the difference between the current value of the asset and the value of the asset when it is due.
CFD indices are traded with leverage. This means that only a small percentage of the total trade
amount is required up front to open a trade. Suppose you're interested in trading the NASDAQ
composite index which is offered with the leverage of 30:1 at Xtrade.net. That means you get 30X
your buying power with every position you open.
If the NASDAQ composite index is being traded at a price of $14,500, or currency equivalent, you only have to front 1/30 of that amount from your own capital. This is known as your margin requirement. It is easily calculated. If leverage is 30:1, margin is 1/30. It is always the reciprocal. In this case, the margin requirement is 3.33%, which means you would have to put down $483.33 to open a CFD trade of that value.
While there are certainly many benefits associated with CFD indices trading, it is not without risk.
CFD trading by its very nature is laden with risks. These short-term financial instruments, known as
derivatives, can fluctuate wildly in price. Despite our best efforts to gauge the performance of the
financial markets, uncertainty remains.
With CFD indices trading, you are actually liable for the full value of the trade (if markets turn against you) even if you only front the margin amount. CFD trading overall is risky since you stand to lose much more than your deposit if the trade sours.
Now you can confidently put your trading knowledge to the test with indices CFD trading at Xtrade.net in demo mode, before you trade for real.
Get started with your Xtrade account today