CFD Trading on Stock Indexes

CFD Trading on stock indexes with Finotec is a great way of trading stocks with margin. Finotec is one of few online brokers that offer the opportunity to trade stock indexes through CFDs. With their potential high return on investment, these financial derivatives attract more investors each day. This is due in part to the leverage option that goes with them and the possibility to open a short position.

What is CFD Trading?

A contract for differences, also commonly referred to as a CFD, is an agreement to exchange the difference in value of a given asset (shares, stocks indexes and commodity futures) between the opening time of the contract and the closing time of the contract. It is a derivative that allows traders to speculate on the price of underlying asset. A CFD on a stock index such as the USA 100 gives an idea of the spot price of a market index in its totality. When trading CFD contracts on stock indices, you do not actually own the underlying product, you are just speculating on its future direction. CFD's on stock indices are traded the same way as currency contracts.

The main characteristic of CFD contracts is the leverage power associated to them. Indeed, CFDs enable you to trade the underlying instrument (stocks and stock indices among others) on a margined basis. This means that you only have to invest a certain percentage of the transaction value. Leverage is expressed as a ratio (e.g. 20:1) and set by your broker. For instance, Finotec offers 20:1 leverage (5% margin) for stock indices. This means that for a transaction worth $100,000, you will only have to invest $5,000.

CFD trading, whether it be on stocks or on stock indices, is another great way to diversify your portfolio. That way you can speculate on the general direction of the world's major stock indices. With CFD trading, you can take advantage of market fluctuations, even if they are small and even if they are downward moves, without having to own the actual underlying asset.

Stock Index CFD

Stock Index CFDs are OTC (over-the-counter) products for which the price is set your broker to reflect the fair value of the underlying index. One of the reasons for the popularity of Index CFDs is that although they are similar to futures, they are traded in smaller sizes. This difference gives the investor more flexibility.

Example:
Let's assume that you expect an increase in the NASDAQ 100 index. You can either:

• buy a mutual fund that tracks the NASDAQ100. Assuming the index currently stands at 10,000, you decide to invest $20,000. This means that you will earn around $2 per point move.
• Or, you can decide to trade a CFD product on the NASDAQ 100. In that case, you would only invest $1,000 as a margin requirement for a $20,000 position and you would earn $10 per point move.

As you can see in the example above, when using a leveraged product "in this case a CFD on index" the return on investment and the profit potential are greatly amplified. Please note that with leverage trading the potential for loss is also significantly multiplied.

Short Selling

As mentioned above, one of the main appeals of CFD trading on indexes is that you can short sell. This means that you can profit from rising stock index prices as well as falling stock index prices. When you invest on an index via a CFD on the Finotec Trading Platform, you can open a short position on the spot at the real-time tradable price. All you have to do after opening a short position is click the "sell" button and buy back the CFD at a future date

Start Trading CFDs on Indices with Finotec

Both our Standard and Mini Trading Systems allow you to trade CFD on major indices. You can buy or sell CFDs on 7 major indices including the USA 100, the USA 500 and the UK 100. Simply click "CFD" on the top product menu and select the index you wish to trade. Select the product amount you wish to trade. You may also choose to set a take profit level and a stop loss to limit potential loss.

Whereas some CFD brokers offer short selling on a limited number of stock indexes, at Finotec, CFD trading is available for both short and long positions for all stock and stock index products offered.

The possibility to short sell CFDs, as well as the leverage available makes CFDs a perfect product for short-term trades. Thanks to those characteristics, CFD trading also allows you to take advantage of small moves in the underlying stock index prices. Whereas with stocks, you often have to maintain your position for months to get reasonable return, with CFDs, the time frame for such potential return is shorter

Our cutting-edge trading platform gives you access to streaming quotes for major indices (with live executable prices) as well as real-time graphs to view historical prices for a given stock index. Finotec's wide range of technical tools, economic indicators and other resources such as our daily market analyses and forecasts should help you in your trading decisions. Furthemore to stay updated on the latest news about the world's major stock indices, you may also activate the Finotec SMS alert option.

A Video Guide to CFD Trading Finotec is one of the few financial firms to offer CFD trading as well as forex, futures, and options. On our trading platform, "Contracts for Difference"� allow you to trade indices and stocks with low margin requirements.
Trading CFD's Finotec's 8th video lesson is dedicated to CFD trading. Learn about the advantages of CFD trading with Finotec and see how to place a CFD order on our state-of-the-art trading platform.

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