The index is composed of shares of certain companies traded on a stock exchange. Typically, it includes the shares of the leading and most traded companies and can be used as a measure of the performance of the industrial sector or the economy of a country as a whole.For example, the USTECH100 index is based … Continue reading Trade in CFDs on indices
The index is composed of shares of certain companies traded on a stock exchange. Typically, it includes the shares of the leading and most traded companies and can be used as a measure of the performance of the industrial sector or the economy of a country as a whole.
For example, the USTECH100 index is based on the top 100 nonfinancial companies (such as Amazon, Google and Facebook) traded on the Nasdaq Stock Market in New York. It includes stocks of companies from various industries: computer hardware / software, telecommunications, wholesale / retail and biotechnology.
If the shares of the companies in the index rise, then the whole index will rise accordingly. Conversely – if stock prices fall, the index will also fall.
Some of the most closely followed global indexes are US30, UK100 and EUGERMANY 30 and each of them is comprised of the leading companies in the United States, the United Kingdom and Germany respectively.
Weight of company shares and calculation of the index
The stock selection of companies in the index is called a basket, each company having a different weight – which is dynamic. For example, on 13 August 2018 the shares of the three leading companies in the US30 were: Boeing (9.11% weight), UnitedHealth Group (7.02%) and Goldman Sachs (6.11%). For comparison, on June 7, 2017, the first three companies in the index were: Goldman Sachs (6.98%), 3M (6.63%) and Boeing (6.08%).
Some indices, such as UK100, are calculated using a weighted average market capitalization. This means that the more a company costs, the more the price of its shares will affect the index as a whole.
Indices such as US30 and JAPAN225, on the other hand, are priced: they include an equal share of each company, which means that higher-priced shares will have more influence.
The index is composed of the shares of a selected group of companies on a stock exchange, each company’s shares having a different weight in the index.
Basically, the indices are regionally based and can be used to measure the performance of a particular industry or the economy as a whole.
Sector indices (eg USTECH100) give you an idea of market sentiments and expectations of a particular economic sector, which can help you decide when to buy or sell individual stocks in the index.
You do not have to make a portfolio of individual shares – you save transaction costs.
You can bid both buy and sell orders for CFDs on indices the same way you trade individual CFDs on stocks.
Deltastock offers trading with the most important European, US and Asian indices such as CFDs. See the full list here.
Example of trading CFDs on indices
Let’s assume that the required margin is 5% and your account balance is $ 2000.00. You want to buy 1 CFD on miniUS30 at a market price of $ 2500,00 (approximately 1 / 10th of the price of the standard US30). To make the deal, you need a $ 125.00 margin. The balance on your $ 1875.00 account is free funds with which you can trade other financial instruments.
If the market price rises to $ 2550.00, you’ll realize a current $ 50 profit that will be reflected in your balance. The blocked amount will increase to $ 127.50 ($ 2550.00 x 5%), and the balance will amount to $ 2050.00 – of which free funds will be $ 1922.50 ($ 2000.00 + $ 50 profit – $ 127.50 margin).
In this case, you have two options:
Close your position by selling 1 CFD on the current market price index of $ 2550.00 and making a profit of $ 50.00 that will be reflected on your account,
or hold the position in anticipation of a rise in price, such as a raise to $ 2600,00. In this case, you will realize another $ 50.00 profit – but taking the risk of falling in the index price.
If the index price drops to $ 2,450.00, you will incur a current $ 50.00 loss that will be reflected in your balance. The amount blocked as a margin will decrease to $ 122.50 ($ 2450.00 x 5%), the balance will also decrease to $ 1,950.00, and the available funds on your account will be $ 1827.50 ($ 2000 – $ 50 loss – $ 122.5 margin ).
In this case, you have two options:
Close your position by selling 1 CFD on the index at the current market price of $ 2450.00 to limit future losses, with your account balance going down to $ 1,950.00,
or keep your position open, expecting a more favorable price, but taking the risk of a further drop in price.
Equal pay dividends
An Equity Dividend Payment is a payment similar to a dividend that is accrued or retained by a customer with Open CFD positions on Equities, Indexes and / or Exchange Traded Funds (ETFs). Like a direct investment in these underlying instruments and CFDs, they are subject to corporate events, including those relating to dividend payments.
In indices, in most cases, the presence and distribution of dividends to their holders follows the distribution and distribution of dividends of the shares included in the index. There are exceptions, however, when dividends are not distributed, and the aforementioned corporate events are reflected in the price of the index.
The equal pay dividend is set to the so-called “ex-date” – this is the date that, if the client is a shareholder in a company, will be entitled to a dividend. As soon as that date occurs, the shares are traded unlicensed and this fact affects their price.
The “ex-date” dates for the indices follow the “ex-date” dates of the shares included in their composition.
If you have a long CFD position on an “ex-date” on an index, you will be charged the equalizing dividend payment, while in a short position it will be deducted. The amount of the equalizing dividend payment is proportional to the company’s weight in the index.
Each country has a different practice in paying dividends. For example, in most European countries, dividends are paid once a year, whereas in the US this happens on a quarterly basis.
Learn more about CFD Trade Equity Dividends.
Trading margin CFD is an additional amount that is due for the use of borrowings in the transfer of a position for the next day and is expressed as a percentage of them. The amount may be a positive or a negative number.
If you have an open CFD position on indexes at the end of the business day that is transferred for the next day, interest is charged (added) or deducted to your account.
Important: When trading CFDs on 100 CFDs, interest is not charged or deducted.
If you have a long position, the interest will be deducted from your account.
If you have a short position, the interest will be charged to your account if the interest rate on the position is a positive number. Interest will be deducted if the interest rate on the position is a negative figure.