An Index is a way of measuring the performance of a specific sector or group of companies. For example, the Dow Jones Industrial Average – commonly called the Dow – is a stock market Index representing the overall value of 30 of the largest publicly owned companies in the USA. There are innumerable stock indices around the world, with each one measuring a different aspect of global and local markets.
Let’s say the Dow Jones index has a current market value of 25,585 points but you believe its value will increase within a certain time period. You take out a CFD contract on the index, the value does improve by the time the contract expires and you make a profit based on the difference between the buy and sell price.
However, if the index value was to fall below the buy price at the point when the contract expires, you’d lose the trade.
Let’s again say the Dow has a market value of 25,585 points, but this time you believe it is overvalued so you take out a CFD contract speculating that the price will fall by a certain time. If it does fall by the time the contract expires, you’d make a profit. If it had risen, you’d incur a loss.
Profiting from downward price movements is one of the unique aspects of CFD trading; if you were investing in physical company stock you could only profit if the value of the company increased.
Trading Indices as CFDs with AxiTrader means you’re able to take advantage of leverage. This means you can use a small amount of capital to gain full exposure to a trade. It’s important to understand that while applying leverage offers the potential for larger profits from a smaller outlay, it can also increase risk and lead to larger losses, sometimes greater that the margin in your account.