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How to take advantage of index moves with CFDs

by , 08 May 2015

Contracts for difference (CFDs) aren't just for trading shares. You can also use them to trade indices (or indexes).

This means if you think a particular sector is going to move up or down, you can trade it.

Let's take a closer look at how this works…

How to trade indices with CFDs

To trade indices using CFDs, you can trade exchange traded funds (ETFs). This means if you think a particular sector or index is going to make a move, you can trade it using CFDs.

By trading indices instead of specific shares, you avoid the need to pick individual shares.

For example, if you think the JSE’s Top 40 Index is going to rise, you can buy CFDs on an ETF which follows this index, such as the Satrix 40.

The Satrix 40 ETF gives you exposure to each company making up the index according to its weighing in the Top 40.

Or if you think a particular sector, such as the financial sector or the resources sector, is going to move up or down, you can trade the CFD on the ETF.

Why you should trade indices using CFDs

There are a number of reasons why you should consider trading indices using CFDs…

ETFs give you the chance to take advantage of an overall index or sector’s performance. By using CFDs you can multiply your profit potential from doing this as they’re geared products. You can cash in on market trends.

By using CFDs on index ETFs, you can go short. So if you think an index is going to fall in value, you can potentially profit from this move.

Trading ETFs using CFDs is also more cost effective than buying the underlying ETF itself. You don’t have to pay stamp duty, securities transfer tax or STRATE. And the costs of entering a trade are less than buying ETFs through your stock broker.

So there you have it, how to take advantage of index moves with CFDs.

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How to take advantage of index moves with CFDs
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