CFDs (Contracts for Difference) are a popular instrument for traders who want to capitalise on the price movements of various financial assets, including stock indices. IronFX, a leading online broker, offers the opportunity to trade CFDs on indices, providing a convenient way to participate in the financial markets.
In this beginner's guide, we will explore stock market indexes and how to start trading CFDs on indices with IronFX.
What are indices?
Indices measure the performance of a group of stocks from an exchange. The value of the index rises when the price of a group of stocks goes up. If the price falls, the value of the index will decrease. For example, the FTSE 100 tracks the 100 largest companies on the London Stock Exchange (LSE). Trading indices enables you to gain exposure to an entire economy or sector at once, while only having to open a single position.
With CFDs on indices, you can speculate whether the price will rise or fall without actually owning the underlying asset. Indices are a highly liquid market, and with more trading hours than most other markets, you can receive greater exposure to potential opportunities.
How are stock market indices calculated?
Most stock market indices are calculated based on market capitalisation. This method gives greater weighting to larger cap companies, meaning that their performance will have a greater impact on an index’s value than that of lower cap companies.
Some of the popular indices, such as the Dow Jones Industrial Average (DJIA), are price-weighted. Companies with higher share prices are given more weighting. This means that changes in their values will have a greater impact on the current price of an index.
Top US stock market indexes
The top US stock market indexes are the Dow Jones Industrial Average (DJIA), Nasdaq Composite and S&P 500.
Dow Jones Industrial Average: This is a price-weighted index that includes the stocks of 30 of the largest companies in the US. The DJIA represents about one quarter of the value of the entire stock market in the US and monitors how the 30 corporations perform.
Nasdaq Composite: The Nasdaq Composite index is the exchange on which technology stocks are traded. It is a market-capitalisation-weighted index. More than 2,500 companies and 3k+ stocks are listed on the Nasdaq exchange. The index includes a broader range of companies from a wider scope of sectors than DJIA. Though the Nasdaq carries a large portion of technology stocks, it also includes securities from the financial, industrial, insurance, and transportation sectors
S&P 500: The S&P 500 index is market-weighted or capitalisation-weighted. It includes 500 of the top companies in the US. When the total market value of all 500 companies in the S&P 500 falls by 10%, the value of the index also decreases by 10%.
Why trade indices with IronFX?
One of the main advantages of trading indices via CFDs is the ability to gain market exposure to an entire index in a single position.
- Global market exposure: You can trade the world markets by accessing global indices like the FTSE100, German DAX, etc.
- Low margin: Since CFDs are typically leveraged, a smaller initial deposit (margin) is required. With leverage though, the risk of losing large sums of money quickly is also high. This makes having an effective risk management strategy key.
- Diversification: CFD indices trading allows you to diversify your portfolio through greater exposure to a broader section of the market, and a larger basket of stocks.
Trade CFDs on indices with IronFX’s leading platforms
IronFX provides the user-friendly MT4 and WebTrader platforms to trade CFDs on indices. Its platforms offer robust features like technical and fundamental analysis, technical indicators, algorithmic or automated trading, Expert Advisors (trading robots), technical charts, graphs, etc.
IronFX educational resources
IronFX understands the importance of education and offers its traders a wide range of educational resources to trade CFDs on indices. These include the following:
Free Forex eBooks covering a variety of topics including trading strategies, fundamental and technical analysis and more.
Webinars provide traders with access to trading insights and strategies that are suitable for both beginner and advanced traders.
Podcasts - the broker provides a variety of forex podcasts to help traders start trading or expand their knowledge and sharpen their trading skills.
Courses - free forex educational courses that cover fundamental and technical analysis as well as more advanced topics.
Trading videos - educational and informative videos for both beginners and professional traders.
How to get started with IronFX
IronFX is a powerful online broker, popular with traders worldwide. Open a demo or live account with IronFX and start trading CFDs on indices with the MT4 platform, the most popular trading platform amongst traders worldwide.
Opening a trading account with IronFX is simple:
- Visit the IronFX website.
- Open a demo or live account.
- Choose the index you want to trade.
- Select your trading platform.
- Open a position, monitor, and close your first trade.
Once you register, you will gain access to educational trading resources, economic and geopolitical news, and daily market insights. If you open a demo trading account, you’ll be able to test your trading strategies in a simulated trading environment, using virtual money.
Consider opening a live trading account once you’ve gained the knowledge and skill needed to execute live trades with your own funds.
All trading involves risk. It is possible to lose all your capital.
DISCLAIMER: This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication.