Lesson: How to Benefit from Index CFDs?

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Lesson Objective

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Lesson Plan

Online CFD trading firstly requires finding a broker with the smallest spreads, least commission and which will offer a wide range of financial products to trade on demo account.

Opening demo account as all the traders will confirm is of utmost importance for newbie investors as it enables to understand and get experience in technical and fundamental analysis as well as thoroughly scrutinize the market before starting real trade. Only trying and practicing on demo account on online trading platform will help you go deep into CFD trading unless of course you are not a professional trader.

CFD represents an agreement between the buyer and seller to exchange the difference between the values of a particular asset at the opening and closing price of a particular trade. In the given article we’ll exemplify equity based index CFDs.

What is equity based index CFD?

Equity based index CFDs are related to stocks. Hence, index CFD trading represents contract-for-difference instruments based on the stock movements. There exist different types of indices which may be price or capitalization-weighted. Therefore they are considered differently when taking decisions upon their relevancy in different situations. Among them one can find S&P 500, the Nikkei 225, CAC40, DJI, and so on. They strictly differ from CFDs like gold and crude oil which are referred as commodity based CFDs. And similarly there can be found currency-based CFDs that contain currency pairs.

How to trade Index CFD?

It’s typical of each equity based index CFD to have a behavioral pattern. Here are given examples to illustrate those behavioral patterns.  Even though Nikkei 225 index is in peculiar inverse correlation to the value of the Japanese Yen, it is referred to as equity-based index CFD. In the same way NASDAQ, another equity-based index, which mainly measures the movement of technology stocks, also has a predictable pattern. Google, Apple, Yahoo!, Microsoft and other  technology giants that have heavy stocks almost always determine where the NSDQ 100 will finally end up for the day. Dow Jones, the S&P 500, London FTSE 100 are other indices preferred by most traders which need deep analysis to be traded successfully.

How to benefit from CFDs?

The examples above displayed the more or less predictable nature of index CFDs. However being familiar with them is not enough. You should know how to benefit from them.  You should learn how to transfer the behavioral information into trading profits.

The most real and highly probable way to start making money from index CFDs is to begin with those which are easier to trade, i.e. the ones with better predictability. Once you can predict the way how e.g.  Nikkei 225 will go your next step will be to find out the technical basis to place a trade. After that you have gained experience it will be much easier for you to learn and trade other Index CFDs as well.

Lesson Resources

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