A CFD or Contract for Difference is a financial product that allows a trader or an investor the exposure to an underlying instrument e.g. equity index, Currency pairs, shares or commodities without having to physically buy the product. As such, a trader or an investor can trade or invest purely on movements of the underlying value (quoted price) of the product. For example, rather than buying physical gold at a certain price and having possession of gold bullions a trader or an investor can place his or her trade purely on the anticipated price movement (in either direction) of the quoted price for gold (typically in U.S dollars). As its name suggests, a “Contract for Difference” is an agreement between two parties (investor and CFD provider) to exchange the difference between the opening and closing price of a contract. CFDs allow investors to make assessments of rising and falling markets.
What are the other advantages of trading CFDs?
✔ Flexibility – size the positions to get the exact exposure.
✔ High Liquidity.
✔ Hold long and short positions – capitalize on market movement.
✔Leverage – trade “on margin”.
✔Hedging of open positions.
CFD trading on indices
CFD trading is a popular form of financial trading because it allows traders to profit from rising or falling markets. When a trader places a CFD trade on a particular index, they are speculating on the overall performance of the equity market that the index represents, rather than focusing on individual stocks and shares. Therefore, a trader can take a more general view of a market and they will be able to make money from upward or downward movements, depending on which way they would like to trade.
CFD trading on indices is a relatively simple concept in that a trader’s exposure per point of movement on the index in question will generally be one of the currencies of the index. Online CFD services, such as those provided by Sandton Capital Markets, make it possible to speculate on over 30 markets around the world.
Global Indices at a Glance
A stock index is comprised of the largest publicly traded companies based in a given country or region. So, if a trader is Trading CFDs on the German DAX 30 and or the U.S S&P 500, the trader will be speculating on the prices of very large German-based and or American companies that constitute these indices. Furthermore; Indices are used as prime benchmarks for fund managers globally and are heavily traded around the world and, due to the large number of companies that make up each individual index; it is very difficult for one participant to overly influence the index’s performance.
One of the main factors that will affect the performance of any given index is the national, regional and global economic activity, as this underpins the growth of the firms that are listed on the index.
US and Canadian Main Equity Indices
Dow Jones 30 (DJI)
The Dow Jones 30 or simply the Dow is a price-weighted average of 30 significant U.S companies traded on the U.S exchanges. The DJIA was invented by Charles Dow back in 1896. The Dow Index is one the most recognizable and followed among the U.S equity indices globally. The DJ 30 Index trades in U.S dollars, Prominent U.S companies in this index include: Apple, Goldman Sachs, IBM, Boeing, Microsoft, MMM, Visa, Coke-Cola, Nike, GE, JPMorgan, Walt Disney, Exxon Mobile, and Johnson & Johnson.
S&P 500 Index (SPX)
The S&P 500 index, often abbreviated as the S&P, is the main U.S stock market index based on the market capitalizations of five hundred largest companies traded on the U.S exchanges. The total market capitalization of the S&P 500 Index is larger than all other companies traded on global exchanges combined. By Mid 2017 the S&P 500 companies’ total valuation was over 21 trillion dollars (21,000 billion U.S dollars).
NASDAQ-100 Index (NDX)
The NASDAQ-100 is a stock market index made up the 100 of the largest U.S and International (non-financial) companies listed on the NASDAQ exchange. The NASDAQ-100 Index is a modified capitalization-weighted and is highly recognized as “The Technology Index” globally. The NASDAQ-100 Index trades in U.S dollars, prominent companies in this index include: Apple, Amazon, Face Book, Intel, Oracle, Microsoft, Tesla, Netflix, Amgen, Baidu, EBay, Alibaba, PayPal, Cisco and Alphabet (Google).
The Russell Index (RUT)
The Russell index is an index measuring the performance approximately 2,000 small-cap U.S based companies that are traded on the U.S exchanges. The Russell 2000 serves as a benchmark for small-cap companies in the United States, and it is highly correlated to U.S economic activity. The Russell 2000 Index trades in U.S dollars.
The U.S Dollar Index (DXY)
The U.S. dollar index (USDX) is a measure of the value of the U.S. dollar relative to the value of a basket of currencies of the majority of the U.S.’s most significant trading partners. This index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies. The index is currently calculated by factoring in the exchange rates of six major world currencies, which include the Euro at 57.6% of the Index, the Japanese Yen at 13.6%, Canadian dollar is 9.1% of the index, the British Pound at 11.9, Swedish Krona at 4.2% and Swiss Franc at less 4%.
Canada TSX 60 Index
The TSX 60 equity Index is a stock market index of 60 large companies listed on the Toronto Stock Exchange. The TSX 60 represents closely the Canadian economy at large. Over a third of this index is represented by the financial sector, followed by the main Canadian energy and natural resources which includes large gold mining companies. Prominent companies in the TSX 60 Index include: RBC Bank, TD Bank, Bank Nova Scotia Halifax, Potash, Goldcorp, CN Railway, BMO, BCE Inc, Enbridge and Suncor Energy.
Latin American Indices
Brazil Top 50 Index (BVSP)
Brazil’s Bovespa Index is an index of the largest 50 companies that are traded on the São Paulo Exchange. The Bovespa is an important index, as it tracks one of the world’s most significant emerging markets, Brazil. Since it is market cap weighted index, the largest firms tend to have the greatest impact on the index’s value. Brazil’s economy has saw a robust growth in the past two decades (Albeit has slowed considerably in last few years) which has been attributed to the rising Chinese demand for commodities and raw materials. Prominent Brazilian companies in this index include: Itau Bank, Ambev, Petrobras, Bradesco Bank, Vale, Brazil Bank, Cielo, Telefonica and BRF.
Mexico Top 35 Index (IPC)
The Mexican IPC index is a capitalization weighted index of the largest companies traded on the Mexican Stock Exchange. Mexico IPC is the 2nd largest index by capitalization in Latin America following Brazil. The Mexican economy is highly impacted by its neighbor to the north namely the U.S. Prominent companies in this index include: America Movil, FEMSA, Group Mexico, CEMEX, Alpha, Telephone Mexico, Wal-Mart Mexico, and GF Norte.
Major European Equity Indices
U.K 100 Index (UKX)
The UK100 Index is U. K’s premier equity index. The UK100 consists of the 100 largest and most liquid companies traded on the London Stock Exchange the LSE. The U.K 100 Index represents approximately 80% of the market capitalization of the LSE. Many of the listed companies with in U. K’s FTSE 100 index are global and they are not necessarily an indicator for the U. K’s economy. The FTSE 100 Index trades in GBP, prominent companies in this index include: BP, BHP Billiton, Anglo American, SAB Miller, HSBC, British American Tobacco, Astra Zeneca, Unilever, Royal Dutch Shell, Diagio, GalxoSmithKline, Rio Tinto, Shire, Barclays, and Vodafone.
Euro Zone 50 Index (SX5E)
The Euro Zone top 50 Index is a market capitalization-weighted equity index of the 50 largest and most liquid European companies operating within the Euro zone nations. The Euro STOXX 50 index trades in Euros, prominent companies in this index include: Total, Siemens, Sanofi, Bayer, SAP, BASF, Santander, BMW, Unilever, Allianz, Anheuser-Busch Ibev, Daimler (Mercedes Benz), SAP, Schneider Electric, LVMH and L’Oreal.
German DAX 30 Index (DAX)
The DAX 30 equity index represents 30 of the largest and most liquid German companies that trade on the Frankfurt Exchange. The prices used to calculate the DAX Index come through Xetra, an electronic trading system. The DAX 30 index represents the powerful German industrial and machinery sectors, the German economy is one the leading exporters globally and hence highly sensitive to the European and global growth. The DAX Index trades in Euros, prominent German companies in this index include: Siemens, Allianz, Adidas, Daimler (Mercedes Benz), SAP, Deutsche Bank, Merck, Henkel, B.M.W, BAYER, Volkswagen, Deutsche Post, and BASF.
France CAC 40 Index (CAC)
The CAC 40, the most widely-used indicator for the Paris equity market, and it reflects the performance of the 40 largest equities listed in France, measured by free-float market-capitalization and liquidity. The French CAC 40 Index trades in Euros, Prominent French companies in this index include: Total, Airbus, L’Oreal, AXA, Schneider Electric, Sanofi, Peugeot, Danone, Vivendi, Renault, Publicis, LVMH, Vivendi, Veolia, and BNP Paribas.
Switzerland SMI 20 Index (SMI)
The Swiss Market Index (SMI) is Switzerland’s blue-chip stock market index, which makes it the most important in the country. It represents 20 of the largest and liquid companies traded on the Swiss exchange. The index represents more than 90% of the entire market capitalization of all Swiss and Liechtenstein companies listed on the Swiss exchange. Prominent companies in this index include: Novartis, Nestle, UBS, Roche, Zurich Insurance, Credit Swiss, ABB, Lindt and Swiss Life.
Italy top 40 Index (MIB 40)
The Italian MIB top 40 Index (Milan Borsa) is the primary benchmark index for the Italian equity market and represents the top 40 largest companies traded in Milano exchange. The MIB 40 Index captures approximately 80% of the Italian market. The MIB top 40 Index trades in Euros. Prominent companies in this index include: ENI, Luxottica, Fiat, Atlantia, UniCredit, Ferrari, Enel, Generali, ST Microelectronics, Salvatore Ferragamo, and Telecom Italia.
Spain 35 Index (IBEX 35)
The IBEX 35 is the benchmark equity market index of Spain. It is a market capitalization weighted index comprising the 35 largest and most liquid publicly traded companies in Spain. The IBEX 35 Index trades in Euros. Prominent companies in this index include: Repsol, BBVA, Iberodrola, Inditex (Zara), IAG, Santander Bank, Telefonica, Gamesa and Amadeus IT.
Russia RTSI Top 50 Index (RTSI)
The RTSI Index “Russia Trading System”, is a free-float capitalization-weighted index of top 50 largest Russian companies traded on the Moscow Exchange, The Russian RTSI is highly correlated to the global energy complex; many of the largest companies in this index are very large Oil and Natural Gas related industries. This index is calculated and traded in the US dollars. Prominent Russian companies in this index include: Roseneft, Gazprom, Lukoil, Novatek, Sberbank, Transneft, Magnit, VTB, and Norilsk Nickle.
Asia-Pacific Equity Indices
Japan Nikkei 225 Index (NKY 225)
The Nikkei 225 is Japan’s premiere equity index. It includes the largest and most liquid publicly traded Japanese companies listed on the Japanese exchanges. It is a price-weighted index (Similar to U.S Dow Jones 30). Japan’s economy is highly sensitive to the export sector; hence the Japanese currency the Yen strength or weakness has shown a strong correlation with the Nikkei 225 performance. Prominent Japanese companies in this index include: Softbank, Toyota, Fanuc, Mizuho Securities, Honda Motors, Mitsui Bank, Daikin, Fast Retailing, Mitsubishi Motors, Kyocera, Fuji Industries, TDK, Sony, Canon, and KDDI.
Australia ASX 200 Index (AS51)
The Australian ASX 200 index is a market-capitalization weighted and float-adjusted stock market index of the largest and most liquid Australian companies listed on the Australian Securities Exchange the ASX. The Australian ASX 200 equity index is dominated primarily by two sectors the financials and highly important Materials (Metal & Mining) sector. These two sectors comprise of more than 70% of the ASX 200 with Metal & Mining companies make up close to 15%. Prominent Australian companies in this index include: ANZ bank, Commonwealth Bank of Australia, Rio Tinto, Macquarie Group, NAB, BHP Billiton, Telstra, Westpac, Wesfarmers, Woodside Petroleum, Woolworth and CSL.
Hong Kong Hang-Seng Index (HSI)
The Hang-Seng Index HSI is an index of the largest and most liquid companies traded in the HKEX (Hong Kong Stock Exchange) and is the main indicator of the overall market performance in Hong Kong. The HSI index is free float-adjusted market capitalization weighted. The leading sectors within the Hang Seng index are the financials and real estate (More than 60%). Prominent HSI index companies include: HSBC, AIA, China Life, Tencent, Sinopec, CNOOC, CK Hutchison, China Mobile, ICBC, Ping An, and Bank of China.
China Enterprise Index H shares (HSECI)
Chinese H-shares (China Enterprise Index) are shares from companies that are incorporated in the Chinese mainland and are listed for trading on the Hong Kong Exchange the HKEX. H-shares companies are regulated by Chinese mainland law. China Enterprise Index H-shares represent 40 of the largest and most liquid of Chinese companies (65% of this index are financials) listed in HKEX. Prominent Chinese companies in this index include: Bank of China, ICBC, CCB, Ping-An, Petro-China, Sinopec, China Life, CITIC Bank and China Telecom.
China A CSI 300 Index (CSI 300)
CSI 300 Stock Index (CSI 300), the first equity index jointly launched by the Shanghai Stock Exchange and the Shenzhen Stock Exchange, aims to reflect the price fluctuation and performance of China’s A-share market. The CSI 300 is a capitalization-weighted stock market index designed to track the performance of 300 largest and most liquid companies traded in the Shanghai and Shenzhen exchanges. The index is compiled by the China Securities Index Company, Ltd. Prominent Chinese companies in this index include: Ping-An Insurance, China Minsheng Bank, Industrial Bank, China Merchants Bank, China Vanke, CITIC Securities, Agriculture Bank, Midea Group, and China Yangtze Power.
India Nifty 50 Index (NIFTY)
The India Nifty 50 index is the National Stock Exchange NSE benchmark stock market index. The index represents the largest and most liquid companies traded on the Indian equity exchanges. The Nifty 50 index is highly reflective of the Indian sub continent, namely India’s relatively closed and highly regulated economy. Majority of the companies within Nifty 50 are primarily family owned conglomerates. Prominent Indian companies in this index include: Tata Motors, HDFC bank, Reliance Industries, Infosys, Sun Pharmacy, ICICI bank, Larson and Tata Consultancy Services.
Korea KOSPI 200 Index (KOSPI200)
The Korea KOSPI 200 index tracks the largest and most liquid companies in South Korea. The index is heavily tilted by very large Korean conglomerates (Korean Chaebols) which include technology, financial, industrial and automobile industries. The KOSPI 200 reflects strongly the South Korean economy which is highly susceptible to global and specifically to Asian growth. KOSPI200 Prominent Korean companies in this index include: Samsung Electronics, LG Display, Hyundai-Motors, Posco, SK-Telecom, SK Hynix, Mobis, Kia Motors, Shinhan Group and Naver.
South African Equity Index
JSE TOP 40 Index (J200)
South Africa’s the JSE Top 40 Index represents the performance of the largest and most liquid companies traded in the Johannesburg Stock Exchange the JSE. The Index measures the performance of the major capital and industry segments of the South African equity market and not necessarily reflects the South African economy. Quite a few very large companies listed on the JSE Top 40 index are global and have most of their income derived from outside of South Africa. Prominent companies in the JSE Top 40 Index include: Anglo American, Naspers, MTN, BHP Billiton, CF Richemont, Standard Bank, Discovery, Sasol, Old Mutual, NED Bank, British American Tobacco, Woolworths, Shoprite and Vodacom.