Contracts For Difference And The Index


We all know that CFDs or contracts for difference trading can be done on stocks, currency, commodities as well as bullion. It’s also possible to trade CFDs on the index itself rather than any individual stock. This approach is an useful one given that it is a diversified one as compared to concentrating on just one stock and because the index normally straddles a spectrum of industries, effects on any one particular stock isn’t a consideration. Somewhat, you are protected from the volatility which you may have to suffer when taking CFD positions on single stocks. So if you believe that the Dow Jones, NASDAQ or FTSE 100 is due for an up move, you can trade CFDs depending on that belief and make profits if the market indeed move according to your belief. On the other hand, you can also do CFD trading for the index about the short side should you think the market is going to tank.

Index CFD trading can be done for all the major indices on the planet and traders often take hedging positions by going long on a single index and shorting the other so that they don’t lose money. The indices that are normally considered for CFD trading would be the UK, US, Australian, Far East and German markets. The Japanese Nikkei as well as the France CAC indices are also traded though on a lesser volume.

Many traders who wish to trade CFDs for the short term generally prefer to trade the FTSE, Dow Jones or even the S&P because they are conscious of the technical analysis and the effect on the price action due to these technical charts when compared with pure fundamentals.

The advantages of index CFD trading are that you could as mentioned trade the different global indices and never bother to track performance of any one company constituting those indices, since not get access or spare the time to do so and trade their CFDs. There’s also a cover of some safety against very sharp moves on the index since some of the stocks within the index is bound to do well and that will help cushion a few of the negativity brought about by other stocks in the same index. Obviously, this depends on the weight age allocated to the different stocks making up the index and the effects will be seen accordingly.

Learn more about index cfd trading as well as Contract For Difference by going to an authority website with discussions on many topics, one particular being IG Markets.

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