Module 1: Stock indices · Lesson 2 of 6

Trading index CFDs

3 min read

An index CFD lets you trade the movement of an entire stock index in a single position, profiting or losing based on how many points the index moves and how much each point is worth on your trade. You never own the underlying shares.

Points

Index prices move in points. If a US 500 index CFD goes from 5,000.0 to 5,012.5, it has risen 12.5 points. Unlike forex, there are no pips: the point is the basic unit.

Value per point

Your profit or loss per point depends on your position size. Brokers define this differently: some set one contract or lot as 1 unit of the index currency per point, others as 10 or more, and many let you choose a stake per point. Always check the contract specs.

The currency matters too. A DAX CFD is usually priced in euros, a FTSE 100 CFD in pounds and a Nikkei 225 CFD in yen, so profits and losses are converted into your account currency.

Worked example

Example: Your broker's US 500 CFD is worth 10 dollars per point per contract. You buy 2 contracts at 5,000.0, so each point is worth 20 dollars to you. The index rises to 5,040.0, a gain of 40 points. Your profit before costs is 40 x 20 = 800 dollars. If instead the index fell to 4,960.0, you would lose 800 dollars. Figures are illustrative.

Margin and leverage

Index CFDs are leveraged. With margin of 5%, for example, a position with a notional value of 100,000 dollars needs a 5,000-dollar deposit. The full 100,000 dollars of exposure is what generates your profit or loss, so losses can grow quickly relative to your deposit.

Costs

Spread: the gap between buy and sell prices, often wider outside the main trading session of that market.
Overnight financing: charged or credited if you hold an undated (cash) index CFD past the daily cut-off.
Dividend adjustments: when shares in the index pay dividends, long positions are typically credited and short positions debited.

Some index CFDs are dated, tracking futures with an expiry, which usually means wider spreads but no daily financing.

Risk: A 2% fall in an index is common over a few days. On a 5%-margin position, that equals 40% of the margin you put down.

Key takeaways

Index CFDs move in points, not pips.
Value per point depends on contract size, which varies by broker.
Profit or loss equals points moved times value per point.
Leverage, spreads and overnight costs all affect your result.

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Educational content only — not investment advice. Leveraged trading carries a high risk of loss.