What Does It Mean For A Stock To Trade Ex-Dividend Trading Indices As a CFD

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Trading Indices As a CFD

Stock indices are an easy way for you to monitor the performance and trade of a specific group of stocks. For example, Singapore’s Straits Times Index is an index based on the value of 30 representative Singaporean companies, while the UK’s FTSE 100 is a measure of the value of the country’s top 100 companies (ranked by market capitalization).

CFDs give you an easy way to take a position on the performance of an index and can provide more flexibility than a regular index fund. Some CFD providers even offer 24-hour index trading – so even if the underlying market is closed, the price for the index is still determined.

Most CFD providers do not charge a commission for index CFDs. Instead, they will add the spread to the spread of the underlying index.

Here is a quick illustration of what trading stock indices as a CFD might look like.

Your CFD broker offers you a quote of 2678/2680 on the Straits Times Index (STI) in Singapore. If you think the STI is rising, you buy the CFD at 2680. If you think it will fall, you sell the CFD at 2678 (also known as closing the market).

After several Singaporean companies report disappointing results, the index starts to fall. However, you believe that these stocks were undervalued and expect the index to bounce back when these stocks rise, so you buy one STI contract as a CFD at 2680.

The cost of one contract will vary depending on the CFD broker, but for this example let’s assume that the contract costs SG$100 per point. This means that your position increases in value by $100 for every index point that the STI moves above your opening level (2680). Conversely, this also means that you will lose $100 for every index point that falls below the opening level.

However, according to your predictions, the STI will bounce back to 2693/2695 in the next few trading days and you will be able to close the trade with profit. You sell your CFD at a price of 2693, which means that the difference between the opening level of your CFD and the closing level of your CFD is 13 pips.

Given that you purchased one STI CFD contract worth $100, that means you made a gross profit of $1,300.

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