Discover the 5 Key Reasons Professional Traders Love to Trade Index CFDs
When people first start trading contracts for difference it doesn't take them long to realise there is a product called an index CFD.
An index CFD effectively lets you track the futures product of the particular market you are looking to trade.
For example here in Australia we have the XJO.
The XJO is a benchmark of the top 200 stocks on the Australian stock market by market capitalisation and by trading this particular index CFD you get access to the top 200 stocks and normally you can trade this commission free.
Around the world you have the opportunity to trade many index CFDs.
Some of the more common Index CFDs are: 1.
S & P 500 2.
Dow Jones 3.
NASDAQ 4.
FTSE 100 Whilst these are your main index CFDs, there are many others that you can trade although the liquidity may not be as high.
If you're looking to trade an index CFD one of the main priorities is access to plenty of liquidity.
When trading an Index CFD you also need to be aware of the open and closing times for that index in your local timezone.
The top 5 reasons people trade index CFDs.
1.
No brokerage.
Most CFD providers allow you to trade the index CFDs with zero brokerage and for as little as one dollar per point.
This makes index CFDs one of the most exciting and cheap products to get started with on the market.
2.
Hedging a portfolio of stocks.
In many cases people have a portfolio of blue-chip stocks and instead of selling them they may wish to hedge using index CFDs.
If for example you have $200,000 worth of blue-chip Australian stocks, instead of selling them or selling a portion of them you could simply short sell the Aussie 200 index CFD.
3.
Incredible access to leverage.
Index CFDs give the opportunity to trade this product for as little as 1% margin.
This means if you had $1000 in cash you could trade $100,000 on an index CFD.
This is very powerful leverage when it works in your favour but keep in mind this can be disastrous if the trade works against you.
4.
An index CFD cannot go to zero.
Unlike a share CFD and index CFD cannot go to zero.
The reason for this is that an index CFD is a benchmark of the largest stocks on that particular exchange.
Therefore all of the largest stocks on that exchange would also have to go to zero which is highly unlikely.
5.
Trade at one dollar per point movement.
When starting out and building confidence in your trading system, trading at one dollar per point as your minimal movement is very sensible.
Initially when you're starting out it is important to build confidence in your system and by trading in such small size you get the benefit of seeing first-hand with real money how your system performs and it's average wins and losses should be kept to an absolute minimum.
So now you can see some of the advantages of trading with an index CFD.
An index CFD effectively lets you track the futures product of the particular market you are looking to trade.
For example here in Australia we have the XJO.
The XJO is a benchmark of the top 200 stocks on the Australian stock market by market capitalisation and by trading this particular index CFD you get access to the top 200 stocks and normally you can trade this commission free.
Around the world you have the opportunity to trade many index CFDs.
Some of the more common Index CFDs are: 1.
S & P 500 2.
Dow Jones 3.
NASDAQ 4.
FTSE 100 Whilst these are your main index CFDs, there are many others that you can trade although the liquidity may not be as high.
If you're looking to trade an index CFD one of the main priorities is access to plenty of liquidity.
When trading an Index CFD you also need to be aware of the open and closing times for that index in your local timezone.
The top 5 reasons people trade index CFDs.
1.
No brokerage.
Most CFD providers allow you to trade the index CFDs with zero brokerage and for as little as one dollar per point.
This makes index CFDs one of the most exciting and cheap products to get started with on the market.
2.
Hedging a portfolio of stocks.
In many cases people have a portfolio of blue-chip stocks and instead of selling them they may wish to hedge using index CFDs.
If for example you have $200,000 worth of blue-chip Australian stocks, instead of selling them or selling a portion of them you could simply short sell the Aussie 200 index CFD.
3.
Incredible access to leverage.
Index CFDs give the opportunity to trade this product for as little as 1% margin.
This means if you had $1000 in cash you could trade $100,000 on an index CFD.
This is very powerful leverage when it works in your favour but keep in mind this can be disastrous if the trade works against you.
4.
An index CFD cannot go to zero.
Unlike a share CFD and index CFD cannot go to zero.
The reason for this is that an index CFD is a benchmark of the largest stocks on that particular exchange.
Therefore all of the largest stocks on that exchange would also have to go to zero which is highly unlikely.
5.
Trade at one dollar per point movement.
When starting out and building confidence in your trading system, trading at one dollar per point as your minimal movement is very sensible.
Initially when you're starting out it is important to build confidence in your system and by trading in such small size you get the benefit of seeing first-hand with real money how your system performs and it's average wins and losses should be kept to an absolute minimum.
So now you can see some of the advantages of trading with an index CFD.
