Index products are a measure of a parcel of financial instruments performances. Most index product combine major stocks on an exchange and measure their performance as a whole to give a broad look at the markets performance rather than being stock specific. It’s not just exchanges in general it can also be sector specific. Index CFDs will vary in size from a combination of a few stocks up to 500 or more.
Index CFDs are great for hedging Broad equity portfolios. It can save time and money to hedge with an index products than with individual equities but is not a perfect hedge. Speculation is another key reason Index CFDs are so popular. If a trader does not want to scan individual equity they can focus on the market as a whole instead using Index CFDs. Some traders tend to be more comfortable picking the direction of a market as a whole rather than a stock.
Trading Index CFDs
Index CFD generally trade around the clock during the week and shut down over the weekend. This is yet another reason they are so popular. CFD providers will mostly offer a continuous price as many of them base their price feeds on the futures products that mirror these indices.
Many CFD providers will offer great leverage on Index CFDs because of the liquidity and strength of the product. Margins in some cases can be as low as 3% but some CFD provider offer it at even 1%. Strict risk management is advised especially for large positions.
Market Maker CFD providers will widen the spread to charge you for your efforts. Keep this is mind because for a large position of $50 a point then a 1 point spread will mean you are paying $50 commission. DMA providers will usually charge a one of contract fee. anywhere from $10-20. If you are very active you can usually get that lowered significantly!