CFD Indices Trading

CFD indices trading allows investors to speculate on the overall direction of a stock index, such as the FTSE. In this guide, we explain how a CFD index trade works with a detailed example. We also look at strategy considerations, popular indices and the best trading brokers in 2024.

Best CFD Indices Brokers

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    AvaTrade's 1250+ leveraged CFD products span a wide range of asset classes including stocks, indices, commodities, bonds, crypto, and ETFs. You can speculate on underlying assets in the broker’s feature-rich web and mobile platforms with market-leading research tools to help discover opportunities.

  2. XTB

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    XTB offers a huge selection of more than 2,100 CFDs spanning forex, indices, commodities, stocks, ETFs, and cryptos (location-dependant). Leverage up to 1:30 is available in the EU and UK, while global clients and pro traders can access up to 1:500. XTB stands out for its CFD trading resources and tutorials to assist traders in developing short-term trading strategies.

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    CMC lets you trade CFDs on 12,000+ assets across currencies, indices, commodities, shares, ETFs and treasuries. Spreads are relatively tight, there are no hidden fees and the industry-leading MetaTrader 4 platform is also supported for leveraged trading. Year after year, CMC shines as one of the best CFD brokers in the market.

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    Eightcap offers a wide range of trading options with 800+ CFDs across stocks, indices, bonds, commodities, and cryptocurrencies (depending on location), with leverage up to 1:30/1:500. It excels in its tools, notably the AI-enabled economic calendar covering 25+ countries with impact filters (high, medium, low). However, its commodities offering, particularly in softs like cotton and wheat, as well as the limited precious metal and energy assets, is its weakest area.

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    FXCC offers a narrow range of CFDs beyond forex with a limited selection of metals, energies, indices and cryptos. However, it stands out with its high leverage up to 1:500, which will serve experienced traders looking to maximize their buying power while speculating on rising and falling prices.

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    Trade CFDs on Spreadex's diverse list of instruments with leverage up to 1:30 and highly competitive spreads. While this broker's USP is spread betting, the excellent trading terms and range of markets makes it an equally good choice for CFD trading.

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    Pepperstone maintains its position as one of the fastest and most dependable CFD brokers during our latest round of testing. With execution speeds averaging around 30ms and an outstanding fill rate of 99.90%, the broker ensures a seamless trading experience without requotes or dealing desk interference. It also provides ample trading opportunities across over 1,300 assets.

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    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 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.

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    You gain access to over 2,250 CFDs, available for trading 24/5 across popular markets such as forex, commodities, indices, stocks, and bonds. Utilizing deep liquidity and advanced bridge technology, IC Markets ensures optimal conditions for scalpers, hedgers, and algo traders alike.

  10. XM

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    Traders can speculate on leveraged CFDs with zero commissions, spanning popular markets including currencies, equities and commodities. Additionally, the MetaTrader platforms collectively offer dozens of advanced technical indicators built for short-term strategies.

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    Trade 5,000+ CFDs from a single account with no hidden fees and free live market data. The suite of markets is impressive vs alternatives, including access to shares, indices, commodities and bonds.

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    DNA Markets offers a small suite of 250 CFDs covering stocks, indices, forex, commodities and cryptos, providing opportunities to speculate on rising and falling prices. There are no restrictions on strategies with leverage up to 1:30 (Australia) or 1:500 (rest of world).

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    With the ability to take both long and short positions on 5,500+ CFDs across forex, stocks, indices, commodities, and cryptocurrencies, FOREX.com excels. Its exclusive Web Trader platform offers an excellent trading experience, equipped with over 80 technical indicators and average execution speeds of just 20 milliseconds, ensuring an optimal environment for serious traders.

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    You can trade CFDs on over 3,000 assets and access rich market data through the integrated TradingView charts. There are also comprehensive free learning tools available for beginners via the eToro Academy, including dedicated CFD trading courses and guides.

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    RoboForex offers a growing suite of over 12,000 CFDs, encompassing forex, stocks, indices, commodities, futures and ETFs. With an initial deposit of $10 and micro lot trading through to very high leverage up to 1:2000, RoboForex caters to a broad range of derivative traders. On the downside, analysis reveals execution speeds of 1-3 seconds, noticeably slower than IC Markets at 0.35 seconds, and suboptimal for fast-paced strategies like scalping.

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    You can trade CFDs across a range of diverse markets with flexible account types and leverage up to 1:1000. With access to both MT4 and MT5, traders can execute multiple short-term CFD trading strategies using the dozens of pre-integrated technical indicators and graphical objects.

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    LQDFX offers a modest collection of CFDs covering currencies, metals, stocks, indices, commodities and cryptos. The 50+ technical indicators and drawing tools pre-included in MT4 will facilitate both short-term and long-term strategies.

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    Trade leveraged CFDs on over 1000 assets with low-cost spreads. You can also take advantage of the broker's integrated signals to help you determine when to enter and exit positions.

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    BlackBull Markets CFDs are offered on forex, stocks, indices, commodities and cryptos with tight spreads and high leverage. The ECN accounts offer fast execution and low slippage, and the broker provides traders with plenty of extra tools and features plus 24/7 customer support.

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    Traders can speculate on 1000+ financial markets with high leverage up to 1:500. You can bet on rising and falling prices in currencies, commodities, indices, shares, and more without owning the underlying asset. With the comprehensive choice of CFD trading platforms, users can also switch between desktop, web and mobile for a seamless trading experience.

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    FxPro offers thousands of CFDs on forex, commodities, indices, shares and futures. The broker's analysis and charting capabilities continue to stand as some of the best in the industry, with Trading Central integration, advanced order types and access to custom indicators.

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    Plus500 presents commission-free CFDs encompassing a vast array of markets, spanning currencies, stocks, indices, and commodities. You can engage in long or short positions on popular assets, benefiting from adaptable leverage without encountering any concealed fees.

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    IG offers a huge selection of 17,000+ CFDs, providing more trading opportunities than most CFD brokers. Traders can go long or short on popular markets like stocks, currencies, commodities and cryptos, while custom price alerts and the IG Academy continue to enhance the trading experience.

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    You can go long or short on a range of CFDs covering forex, commodities, shares, indices and cryptos. High leverage up to 1:500 is available for experienced traders in some locations, whilst beginners will appreciate access to micro-lots. There are no restrictions on short-term trading strategies using CFDs.

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    You can trade 275+ CFD instruments covering equities, currencies, commodities, indices and cryptocurrencies. The broker offers flexible trading software and account options, plus access to the unique dealCancellation risk management tool, which is ideal for beginners.

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    Access highly leveraged CFDs across forex, commodities, indices, stocks and bonds with 24/5 customer support. Build a diverse portfolio with hundreds of CFD assets.

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    CFDs are available on forex, stocks, indices, metals, oil and cryptos, with support on MT4. Execution speeds are also decent, averaging 0.5 seconds, though there is also a VPS service facilitating 24/7 connectivity for algo strategies.

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    Markets.com offers a strong variety of CFD products, not only covering popular asset classes but also more interesting markets such as IPOs and Bonds. The low fees and educational resources will appeal to beginners, whilst seasoned CFD traders will appreciate the feature-rich charting platforms.

  29. Axi

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    Axi offers 220+ products covering forex, shares, commodities, indices and cryptos. Spreads on EUR/USD come in at around 0.2 pips in the Pro account and 1.1 pips in the Standard account. These are competitive and aligned with equivalent accounts at leading low-cost brokers like Pepperstone.

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    The broker offers a small range of 100+ CFD instruments spanning key markets, with high leverage up to 1:500. Pricing is reasonable, with round turn commissions coming in at $6 alongside tight spreads. Multiple short-term strategies are also permitted, including hedging and scalping.

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    VT Markets offers over 1000+ CFDs spanning currencies, stocks, indices, ETFs and commodities. The MetaTrader charting platforms provide dozens of technical tools alongside integrated market analysis resources and zero restrictions on short-term trading strategies.

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    My tests uncovered around 100 CFD products covering forex, indices, commodities and cryptos. Leverage is available up to 1:400 and it’s good to see that scalping, hedging and EA strategies are permitted.

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    PrimeXBT offers CFDs across four asset classes with very high leverage up to 1:1000. Beginners can also take advantage of the broker’s useful technical analysis guides and CFD education, plus 24/7 in-platform support via live chat.

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    Traders can access CFDs across forex, indices, commodities and stocks. There are no restrictions on short-term strategies, which is good news for scalpers and algo traders. There’s also an excellent range of free tools on offer, including a custom price ticker.

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    FXTrading offers CFDs on a wide range of assets, including forex, stocks, commodities, indices and cryptocurrencies. Commodities include a selection of softs as well as metals and energies, and the eight indices offered include the US30, US500 and UK100. Flexible leverage is available with excellent risk management tools.

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    ThinkMarkets continues to offer an excellent range of around 3500 CFD instruments covering forex, indices, stocks and commodities. Leverage is available up to 1:30 in the EU and UK, while global clients can access up to 1:500.

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    M4Markets offers CFD trading across forex, stocks, indices, commodities and cryptocurrencies. Traders can access powerful charting platforms with multiple order types and built-in indicators. There’s also a good selection of data-driven analysis tools supplied by reputable provider, Acuity.

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    SuperForex offers CFDs on a good range of assets, though it only really shines when it comes to forex, thanks to its very diverse list. On the other hand, the significant leverage available on most assets increases profit potential, though traders will need to watch out for spreads, which compare poorly to some competitors.

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    Access over 2,000 CFDs across diverse markets including indices, commodities and bonds. There is also premium daily analysis and strategy resources for savvy traders.

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    Trade 400+ CFDs on forex, stocks, commodities, indices and cryptocurrencies with the choice of commission-free or raw-spread accounts with transparent fees. Speculate on rising and falling prices with no hidden charges.

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    IronFX’s asset list of 300+ instruments covers forex, stocks, commodities and index CFDs. Maximum leverage from 1:30 to 1:1000 is available depending on account location. Traders can access superb technical analysis features, including 30 pre-integrated indicators and 9 charting time frames.

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    Ingot Brokers offers CFD trading on 1000+ instruments including stocks, commodities and cryptocurrencies. The MT4 and MT5 platforms offer comprehensive features for active CFD traders, including multiple order types and pre-integrated technical tools.

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    You can trade a range of CFD instruments across forex, shares, indices and commodities. There’s an excellent selection of platforms for traders, including TradingView and MT4, plus additional tools for experienced algo traders including API solutions.

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    You can trade hundreds of CFDs on major asset classes including currencies, shares and futures. Spreads are not overly competitive starting at 0.9 pips, although the $50 minimum deposit and zero commissions will allow active traders to keep their costs down.

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    Dukascopy offers highly leveraged CFDs with rates up to 1:200. A wide selection of asset classes are available, including currencies, equities, commodities, ETFs and cryptos. Spreads are also tight starting from 0.1 pips and traders get 24/7 support.

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    Trade CFDs on forex, stocks, indices, commodities and cryptos with high leverage up to 1:500 on the no-commission ClassiQ account. The raw spread account options have low commissions from $4 round-turn and offer lower maximum of leverage of 1:200 or 1:400, which is still competitive.

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    Trade CFDs on forex, indices, metals, oil and cryptocurrencies with high leverage up to 1:500 and competitive spreads, with the choice between zero commission or raw spreads.

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    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.

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    Rock Global offers low-price CFDs on forex, shares, indices and commodities. The broker charges zero-commission trading on commodities and indices, and zero-spread, commission-only trading on shares. Leverage varies by instrument with 1:200 available on indices and 1:10 on blue-chip stocks.

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    FXTM’s CFD offering spans 250+ forex, stocks, commodities and indices, plus crypto CFDs at the global entity. Leverage up to 1:30 is available from the CySEC-regulated branch, though highly seasoned traders can also access massive 1:2000 rates from the global entity.

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    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.

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    CFDs are available on a breadth of underlying assets, including stocks, indices, commodities, forex and cryptos. High leverage up to 1:500 is available alongside a 0.01 minimum lot size and award-winning software. For the tightest spreads from 0 pips, opt for the Premium account.

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    Trade CFDs on forex, indices, stocks, commodities and cryptocurrencies with leverage up to 1:3000. Swap-free trading is available, and all account types trade with competitive spreads and are commission-free except the Go Pro account, which charges a $7 round-turn commission.

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    CFDs are available on popular asset classes with a competitive $1 minimum deposit. The MT5 integration will allow serious short-term traders to utilize the vast library of technical tools, bots and indicators, but the lack of any CFD trading education puts the broker behind many alternatives.

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    Focus Option offers CFD trading through an intuitive mobile app, with 300+ tradeable instruments spanning forex, cryptocurrencies, commodities, shares and indices. Leverage ranges from 1:20 to 1:50 and spreads are variable, starting from 1 pip, with no commission.

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    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.

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    Access thousands of CFDs with competitive pricing and leverage up to 1:500. A range of asset classes are available, including currencies, shares, indices, metals and commodities. CFDs can be traded on the market-leading MetaTrader platforms.

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    PU Prime offers CFD trading on hundreds of shares, as well as indices, commodities, bonds and cryptocurrencies. The leverage available varies by asset, and spreads also vary greatly between instruments and account types with the tightest near zero and the widest in the hundreds of pips. Stock, index, commodity and bond CFDs are traded on the leading MT4 platform.

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    Go long or short on over 170 CFDs with high leverage up to 1:500. The broker's social community is also a great place to pick up CFD strategy tips and trading ideas.

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    Errante customers can trade stocks, indices, commodities and cryptocurrencies with leveraged CFDs. The level of leverage available depends on regulatory oversight, with 1:30 the maximum allowed in the EU though this varies by asset.

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    CFDs are available on hundreds of markets including forex, indices, shares and commodities. Traders can go long or short with reliable trading tools, excellent market research and transparent pricing.

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    Swissquote offers spot, forward and synthetic contracts on a breadth of markets, including stocks, indices, bonds and commodities. The pricing model is transparent with no hidden fees. Clients can diversify portfolios and hedge risk with low margin requirements.

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    Trade CFDs on forex, stocks, metals, energies, cryptos and indices with high leverage up to 1:1000 on major currency pairs, 1:200 on metals, 1:100 on indices, 1:33 on stocks and energies, and 1:5 on cryptocurrencies. The range of 200+ instruments is not the biggest on the market, but the variety of asset classes provides flexible trading options for most traders.

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    FP Markets' CFD trading covers a range of markets, including 10,000+ equities, indices, commodities, cryptocurrencies and ETFs. Spreads are tight and traders get fast execution speeds.

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    Core Spreads offers CFD trading on 40 forex pairs plus 13 commodities, including metals and energies, and 13 global stock indices including the UK100 and US30. CFDs are traded through the MT4 platform with leverage up to 1:30 in line with UK regulations.

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    Anzo Capital clients can use MetaTrader 4 and MetaTrader 5 to trade CFDs on stocks, equity indices, crude oil and precious metals with competitive price levels.

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    HYCM traders can access CFDs on a range of stocks, indices, commodities and ETFs with floating spreads and maximum leverage varying by instrument. Clients also have a choice between two industry-leading platforms.

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    Global Prime offers CFD trading opportunities on 150+ global markets including forex, indices, commodities, cryptocurrencies and bonds. Spreads are tight with a raw ECN account available starting from zero.

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    Fortrade's list of leveraged CFDs covers a wide range of asset classes including forex, stocks, bonds, indices, commodities and cryptocurrencies. Traders can access leverage up to 1:30 and will trade with zero commission, fast execution and low latency on MetaTrader 4 or the bespoke platform.

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    Traders have the opportunity to engage in CFD trading across a broad spectrum of assets, including currency pairs, stocks, commodities, bullion (gold and silver), indices, and cryptocurrencies. Experienced traders can access high leverage up to 1:1000 in certain jurisdictions. However, a notable downside is the restriction of scalping strategies which may deter experienced traders.

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    FXOpen offers CFDs on multiple assets including forex, stocks, commodities, indices, cryptocurrencies and ETFs. Leverage and spreads vary by instrument, with spreads starting from zero and fast order execution.

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    Libertex's list of CFDs covers a decent range of tradeable underlying assets, but there isn't much depth with only around 250 in total. Leverage up to 1:30 for retail clients is available in accordance with CySEC regulations, and traders can choose between three excellent trading platforms. Best of all are the tight spreads available on all markets and the zero commissions on investments in stocks.

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    Trade CFDs on forex, stocks, indices, commodities, ETFs, bonds and cryptocurrencies with variable leverage up to 1:30. The broker provides great value to traders with six free trades per day on US, UK and European stocks, tight spreads on forex and low commissions on ETFs.

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    Trade CFDs on a broad range of asset classes including forex, energies, precious metals, company shares, indices and cryptos. The excellent trade execution and opportunity to trade with direct market access pricing sets this broker apart from rivals.

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    Trade CFDs on forex, stocks, commodities and indices with tight spreads and leverage limited to the FCA-sanctioned maximum of 1:30. Infinox traders benefit from lightning-fast execution speeds and a choice between STP and ECN pricing, making this a flexible option for beginner and serious traders.

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    Trade CFDs on 75+ instruments, including forex, energies, metals, and indices with variable leverage up to 1:500 on major pairs, 1:200 on minors and exotics and 1:100 on commodities and energies.

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    OspreyFX offers leveraged CFDs on forex, commodities, stocks, cryptos and indices. Deep liquidity is available from 50+ providers with a competitive ECN account that will suit active trading strategies, including scalping.

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    Trade a decent range of markets via CFDs, with commissions of $6 per lot. There is also a reasonable $10 minimum deposit and 24/7 customer support for new traders.

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    Trade all markets via CFDs, with retail leverage up to 1:30. With the RStocks Trader account, clients can access over 12,000 CFDs with algorithmic analysis tools and intuitive charts.

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    AdroFx offers a most selection of around 100 CFDs on stocks, cryptos, indices and commodities. Its appeal lies in the high leverage up to 1:500 which you can't find in heavily regulated jurisdictions and the commission-free pricing model which will serve beginners. You can speculate on both rising and falling prices from the same product with CFDs.

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    Trade flexible CFDs on forex, commodities, indices and cryptos with tight spreads, fast execution, micro-lot trading and leverage up to 1:500. There are also no restrictions on trading strategies.

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    EZ Invest offers leveraged CFDs on popular asset classes, including forex, stocks, indices and commodities. Execution speeds are decent but a large deposit is needed for the best pricing conditions.

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    Trade 8,900+ CFDs spanning forex, stocks, indices, commodities, options and bonds with powerful tools and signals.

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    Access a modest range of CFD instruments across key markets, including indices and commodities. Clients can trade directly from charts with high leverage up to 1:500 and customisable time intervals.

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    You can speculate on popular financial assets covering forex, commodities, indices, metals and bonds. You can get started with $0 minimum deposit, making the broker a good pick for beginners. There’s also over 130 technical indicators available collectively in the MT4 and OANDA Trade platforms.

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    Trade CFDs on 100+ instruments from popular asset classes. Leverage up to 1:200 is available on precious metals, while stocks, indices and energies can access 1:20 max leverage and 1:10 for commodities. On the negative side, the depth of assets is limited vs other CFD brokers.

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    With CFDs on 20+ Polish and 30+ US stocks, as well as energies and seven global stock indices covering US, UK, European, Australian and Japanese markets, Just2Trade offers a superb selection of global assets.

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    You can take positions on a range of popular trading markets including forex, stocks, energies and metals. Leverage is high at 1:500 and live spreads can be viewed in the web-accessible platform and app.

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    World Forex's leveraged CFDs are available on a modest suite of 100+ instruments, including stocks, commodities and forex. Very high leverage up to 1:1000 is available for account balances up to $1000, with lower levels available to accounts with higher balances.

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    Trade commission-free CFDs on 3000+ instruments from forex, stock and commodities markets with volumes starting from 0.1 lots, a low minimum deposit of $10 and tight floating spreads. The selection of CFDs beats most competitors.

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    Trade CFDs on forex, commodities, indices and crypto assets. With spreads from 0 pips and generous incentives and bonus offers setting Vault Markets apart from competitors, this Namibian broker will appeal to aspiring traders.

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    Trade CFDs on forex, stocks, indices, energies and metals with fast execution and variable leverage. Spreads are tight and commission-free trading is available on some assets.

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    Trade 200+ CFDs with leverage up to 1:1000 on a powerful proprietary platform. Asset classes include stocks, forex and crypto with ECN execution. You can bet on rising and falling prices with leveraged CFDs.

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    Trade CFDs on an array of assets with ultra-low spreads

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    Engage in leveraged CFD trading across a wide array of instruments, encompassing forex, stocks, commodities, and indices. Yet while the selection of asset classes is satisfactory, the charting software and floating spreads for short-term traders fall behind that of competitors.

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    Trade leveraged CFDs in a range of financial markets.

Contracts For Difference

CFD trading involves a buyer and seller agreeing to pay the difference between the price of an asset at the time of purchase and the value at the contract’s expiry, or when the holder decides to sell. CFDs essentially allow speculation on price movements without taking ownership of the underlying asset, for example, stocks on the FTSE 100.

There are two ways of making a profit with CFDs; going long or going short. If a trader anticipates a price increase, they should go long, and if they anticipate a price fall, they should go short.

Importantly, CFDs are usually traded with leverage. This means an investor can bolster their purchasing power by taking a loan from their online broker. Most FCA-regulated trading platforms offer leverage up to 1:30. So if a trader deposits £10, they can trade with £300. This will amplify the trader’s potential profits and potential losses.

How CFD Indices Trading Works

Indices measure the aggregate performance of a pool of underlying stocks, the value of which fluctuates depending on how the individual assets perform. As an alternative to spot trading, index CFDs allow investors to trade based on a broader picture of an economy or sector, such as energy, manufacturing, or financial services.

For example, if following a general election, a trader anticipates that the UK economy will see an uptick, they could capitalise on this prediction by going long with a CFD on the FTSE.

On the other hand, if a trader believes that the country is heading for recession following high inflation and a cost of living crisis, a trader could go short with a CFD on the FTSE.

Guide to trading CFD indices

Trade Example

To understand how trading CFD indices works, let’s look at an example…

The FTSE 100 is currently valued at 7,500. However, a trader expects an upcoming announcement from the Bank of England will signal a boost to the country’s economy, and as a result, they expect the FTSE to rise.

With this in mind, the investor buys 20 FTSE 100 contracts. Each contract is equal to £10 per point, meaning that for each upward point of movement, the trader will make £200 (20 contracts X £10). Equally, for every downward point of movement, the trader will lose £200.

Two days later, following the positive announcement from the Bank of England, the FTSE is trading at 7,550, a 5-point increase. The trader decides to close their position, taking £1000 in profit (5 X £200).

It’s worth pointing out that traders will also need to minus any overnight financing fees, plus commission charges from their overall profit figure.

Benefits Of Trading CFD Indices

  • Leverage allows traders to boost potential profits
  • Less risk of dramatic price fluctuations because overall price changes are influenced by a variety of assets
  • Trading CFD indices can suit a hedging strategy where the investor is looking to offset an existing long position
  • Enables portfolio diversification, providing access to multiple industries, from pharmaceuticals to real estate and technology

Drawbacks Of Trading CFD Indices

  • Traders do not own underlying stocks when trading CFD indices, so investors won’t receive dividend payments or have voting rights
  • Trading on margin can magnify losses. Fortunately, most FCA-regulated brokerages cap leverage to 1:30 and offer negative balance protection, meaning clients cannot lose more than their account balance

Some of the most popular indices for trading CFDs include:

  • FTSE 100: Share index of the 100 companies with the highest market capitalisation listed on the London Stock Exchange
  • S&P 500: Stock market index of the 500 largest companies listed on exchanges in the United States
  • DAX 40: Stock market index of the 40 companies with the highest market capitalisation and liquidity listed on the Frankfurt Stock Exchange
  • Nasdaq 100: Index of 100 non-financial businesses with the highest market capitalisation listed on the Nasdaq Stock Exchange
  • Nikkei 225: Price-weighted index of 225 blue-chip companies with the highest market capitalisation listed on the Tokyo Stock Exchange
  • Euro Stoxx 50: Index composed of 50 stocks from 11 Eurozone countries

These stock indexes are available at many of the top brokers. Their popularity also means there is a wealth of market insights and data available online to support investment decisions.

CFD index trading strategy

How Prices Are Calculated

Market Capitalisation Method

Stocks in an index are weighted based on the company’s market capitalisation (share price X number of outstanding shares). This means the performance of larger companies has more impact on the overall index value. These companies typically play a larger role in the market in terms of profits and employment figures.

The S&P 500 is the most popular market cap-weighted index. It is considered a gauge for the overall financial health of the United States as well as the wider world.

Price Weighted Method

Each stock is weighted based on the share price of the companies listed. Companies with a higher share price hold more weight and have a greater overall impact on the index. In these types of indices, the value of the index is proportionate to the average stock price of listed companies.

The Nikkei 225 is a popular index that uses the price weighted method and is a good option for investors looking to track the average price performance of a particular sector.

Unweighted

Here, securities within an index have equal weight. These types of indices are less common, but one example is the S&P 500 Equal Weight Index (EWI), which is formed of the same companies listed on the S&P 500, but each one has an equal weight of 0.2%. This will suit traders looking for smaller companies with lower share prices and market caps but which will still have an equal impact on the value of an index.

Importantly, how prices are calculated can impact the overall value of an index. For example, the price of the S&P 500 EWI increased by almost 5.62% from June to July 2022, compared to a 5.93% rise in the weighted S&P 500 during the same period.

Getting Started Trading CFD Indices

  • Open an account with a broker: Investors will need to sign up with a brokerage that offers CFD indices trading. Popular examples include City Index, VantageFX and FXCC. Look at commissions, overnight financing charges, plus deposit and withdrawal fees. Also look at the platform offered and any mobile apps. Do they provide access to the popular MetaTrader 4 terminal, for example?
  • Select an index: Choose an index you have a good grasp of and insights into. British traders may want to speculate on the FTSE 100 or FTSE 250. Alternatively, investors may want to make predictions on major US indices, such as the Dow Jones 30 and S&P 500.
  • Go long or short: Following technical and/or fundamental analysis, choose which direction you believe the price will go (increase or decrease). Depending on the anticipated price change, go long or go short.
  • Select the number of units: How large a position do you want to take when CFD trading? Check how many GBP per point movement you will get from the broker. And remember, leverage can help boost your position size but losses can also quickly accumulate.
  • Add risk management tools: Implementing a stop loss order means that if the price of the index falls to a predetermined level, the platform will automatically close out your position, limiting potential losses. Equally, a take-profit order will automatically close a position when you have locked in a certain level of profit.

Bottom Line On Trading CFD Indices

CFD indices trading can be an effective way to diversify investment portfolios. They allow traders to speculate on the performance of individual economies and industries. The leverage element of CFDs also means that beginner traders can make potentially large profits with limited capital outlay.

Choose from our list of recommended brands to get started trading CFD indices.

FAQ

When Is The Best Time To Trade CFD Indices?

Each index has its own trading hours. For example, the FTSE 100 opens at 08:00 am and closes at 04:30 pm GMT each day. There are also specific periods where indices see the most volume and volatility, typically between 01:30 pm and 02:30 pm GMT. This is when the UK market crosses over with other major trading jurisdictions.

Is Trading CFD Indices Risky?

Investing is inherently risky. Most investors lose money when trading retail CFDs in the UK. With that said, there are risk management strategies and precautions that traders can take, including using stop-loss orders and take-profit orders. Check which risk alerts and tools an online broker offers before opening an account.

Trading CFDs on indices is legal in the United Kingdom. The best brokers are regulated by the Financial Conduct Authority (FCA) and provide a secure investing environment. Avoid firms that aren’t regulated by the FCA.

What Are The Best Indices To Trade CFDs?

Each index has its own merits and drawbacks. With that said, popular indexes that offer decent price action and exposure to some of the world’s largest economies include the FTSE 100, S&P 500, DAX 40, Nasdaq 100, Nikkei 225, and Euro Stoxx 50.

How Can You Make Money From Going Short With CFDs On Indices?

Going short on a CFD index is where you anticipate a price drop. You essentially ‘borrow’ CFDs on the chosen index and sell at the current price. You then buy at the new, lower price (this is where the profit is made), before returning to the lender.