How To Trade Indices

There are a number of ways to trade indices.

One of the easiest ways, however, is through Contracts For Difference (CFDs).

CFDs are financial instruments that offer traders and investors the opportunity to profit from the price movements of a security without actually owning the underlying security.

When you trade a CFD, you are entering into an agreement with your broker to exchange the difference in the price of the security from the point at which the contract is started to the point when it is closed.

Trading indices through CFDs has a number of advantages:

• CFDs are easy to use.

It’s much easier to buy a CFD on an index than buy all the stocks that are in it. CFDs are also very accessible. All you need is a trading account with a broker or investment platform that offers CFDs and you can be trading indices within minutes.

• You can trade in both directions.

The beauty of CFDs is that you can potentially profit from both upward price movements and downward price movements. If you believe that an index is going to rise, you buy a CFD (go long). If you believe that an index is going to fall, you sell a CFD (go short).

• With CFDs, you can use ‘leverage’ to trade a larger amount of money than you have deposited for the trade.

Leverage can work to your advantage by potentially increasing your trading profits. However, it can also magnify your trading losses, so it’s important to be aware of the risks.

• Typically, there are no transaction fees associated with CFD trades.

The main form of fee that traders pay is the ‘spread’ between the buy price and the sell price of the trade.