CFDs allow you to invest in many products, and Exness informs you mainly about CFD shares, but you can also invest in stock market indices such as the CAC 40 or the Dow Jones like indices trading.

If you generally think that the stock market will rise or fall soon, it may be more interesting to trade on the indices because a stock can sometimes take the opposite direction of the market following good/bad news.

The system of CFDs on indices is broadly the same as for stocks. You buy a CFD contract and resell it whenever you want. We have prepared an example of Trading on an index to see it more clearly.

What Is a Stock Index?

A stock market index includes stocks from the same country or sector. For example, the Cac 40 brings together the 40 largest French market capitalizations. Stock market indices are numerous, with the Dow Jones, the Nasdaq, the CAC 40, the Dax, etc. There are dozens of them.

Index Trading with CFDs

You can trade the indices over the long term or day trade (buy the index and sell it on the same day). Thanks to CFDs, it's straightforward, you will benefit from dividends, you have no commissions, and above all, you will not be forced to invest large sums thanks to the leverage effect.

Example of Index Trading

You want to take a position on an index called the "European index," for example, thinking that the price will rise.

You buy 1 European Index CFD = €5 (each trading point is equivalent to €5) for 3800 points.

Several hours go by, and the European Index has risen well, as you expected. The price is currently at 3830 points. You sell your European Index CFD. You win €150 (30 points x €5).

If, conversely, the European index has fallen and finds itself at 3780 points for example, you have bought at 3800 points, so you will lose €100 or 20 points by selling your position.

As with other financial instruments, you can also take a downside position.

How To Invest In Stock Indices?

The indices are, in fact, indicators of stock market performance. They are not tangible assets. Therefore, you can only invest in indices using derivatives such as futures and options. However, options and futures have an expiration date and do not allow long-term positional trading.

For this, you can invest in index funds that allocate their assets to companies listed on a particular index. Your broker may also offer CFDs that track the performance of an index.

How Much Should One Invest In Indexes?

Buying futures and options usually require a high margin amounting to several thousand dollars. On the other hand, ETFs, mutual funds, and CFDs are more accessible. With CFDs, you can trade indices with a balance as low as $10.

How to Start in Trading?

To start trading correctly, you must take the time to go step by step. Above all, do not try to skip the stages, even if the path before the passage of the first trade may seem very long.

The first thing to do is determine the time and resources (material and financial) you will devote to this new activity. Based on the time you can devote, it will be possible to determine which trading styles are the most suitable for your situation.

Example:

A trader who can devote 10 hours daily to his trading will have multiple possibilities. He can choose between scalping, day trading, swing trading, carry trade, news trading, arbitrage, etc. On the other hand, a trader who can only devote 2 hours a day to his trading will have a more limited choice (swing trading and carry trade, for example).

Specific trading strategies will need to be ruled out depending on the resources you can devote to trading. For example, arbitrage or algorithmic trading will require significant computing resources and solid Internet infrastructure.

Suppose there are still several possibilities at this stage. In that case, it will also be necessary to determine whether you can manage significant stress or not… in which case it may be necessary to avoid scalping.

Finally, you must also consider your tastes and desires since success in trading will require a lot of work and effort. Passion will be the engine that will allow you to overcome the difficulties that you will have to face as a trader.

Then, you will have to choose the market and the asset you will focus your efforts on (currencies, stocks, indices, bonds, commodities, etc.).

Now that you have a clear idea of ​​what you will do in trading, you will need to take the time to train. Whether reading books and educational articles, following webinars and conferences or following a training course... The learning stage is not to be taken lightly.

Be aware that it takes several years to study to become a bank or hedge fund trader. Devoting one or two years to your learning period will not be too much.

Once you are ready to start trading, know that during your first few months of trading… you will still be in the learning phase. It will therefore be necessary to start slowly with moderate risk-taking.

Trading: when to trade which assets?

Most independent retail traders have a professional activity, especially at the beginning. It is, therefore, a safe bet that you will not be able to trade all the time and at any time, which may affect the assets you will trade since the different stock exchanges are not all open at the same time.

Thus, the day is when the European markets are open, the afternoon and evening, the US and Canadian markets, and the Asian markets at night.

Note: the foreign exchange and cryptocurrency markets are the only financial markets open 24/7 for currencies and 7/7 for cryptos. Many derivative products are also accessible at any time. In addition, the offer tends to expand. For example, we can cite the release of Exness broker, which, unlike its peers, is quoted continuously 24/24 and 5/7.

Derivatives allow the trader to position on many underlying stocks, bonds, commodities, and currencies and therefore offer the trader the possibility of investing in all financial markets without exception.