1. Select how to trade indices
CFDs can be used to trade indices in IG. CFDs can be used to wonder about indices that are increasing or failing in value. CFDs are financial derivatives.
CFDs are a contract between two parties to trade the price difference from the point of the contract being opened to the point it is closed. The following are the characteristics of CFD in IG:
ü It is accessible to all clients
ü It is traded in contracts that reflects the price action in the underlying market
ü It is commission-free
ü Available in web platform, mobile trading app and MT4
2. Decide whether to trade cash indices or index futures
There are two methods to have an exposure to an index’s price when trading with IG: by trading cash indices or index futures.
Traders with short-term outlook (day traders) use cash indices since it has tighter spreads than index futures. Cash indices are traded by getting the front month future price and applying fair value. It is traded at spot price.
Traders having a long-term market outlook often preferred index futures. Index futures overnight funding charge is included even if they have a wider spread than cash indices. They are traded at a price that futures traders agree in the present to be delivered in the future. It is traded at a futures price.
Holding on to an index position for a long time can make a trader to avoid incur frequent overnight funding charges.
ETFs and Shares
ETFs and individual shares can also be used to trade indexes with IG aside cash indices and index futures. A trader can open these positions with CFDs.
3. Create an account and log in
Open an account with IG to start trading indices with CFDs.
4. Choose the index to trade
The trader must select an index that best suited his trading style. It depends on the individual risk appetite, available capital and if it will be for a short-term or long-term position.
In an instance, the Germany 30 is usually a volatile index in which traders with high-risk appetites and prefer short-term trading are often favored. Meanwhile, the US 500 is known for the steady returns over time are the favorite of traders with lower risk appetites and have a long-term outlook.
Over 80 index markets on both major and minor global indices are offered by IG. Traders are more likely to find a market that fits his individual trading style.
5. Decide whether short-term or long-term
Going for a long-term means there is a thinking that the index value will increase and going for short-term means that it will decrease otherwise.
A long position could make a profit if the index increased in value, having an economic outlook for an economy or sector looks good based on the companies’ index performance.
Go short term if the expectation of the index value will decrease. Large companies on capitalization-weighted indexes are underperforming hence, the outlook is poor.
6. Set Stops and Limits
Manage risk while trading indices using essential tools like stops and limits. To close position automatically if it goes less on the set level than the current market price, use stop order. Limit order will close the position automatically if the market price goes to a more favorable side.
7. Open and Monitor Trade
Open trade to start trading indices. To do this, go to the market of choice to trade on the IG platform. Wall Street for an example. Decide if to deal at the cash price or the futures price. Select buy if there is a possibility the price will increase or sell if the price will decrease. Enter the position price then click “place deal” to open trade. Monitor the position and close trade when taking a profit or cut loss.