A stock index is a “basket of shares” and reflects the evolution of a particular sector or capital market development of a country as a whole. In other words, indexes can be a measure for the investors’ confidence on the economy of a country.
Through transactions indexes a person can invest and trade in the most important indexes of the financial markets through CFDs. A CFD or Contract for Difference allows a person to buy and sell various financial instruments and to exploit price movements without actually owning those financial instruments. Thus, an investor trades on stock indices a wide range of CFDs on Dow Jones Industrial Average (US.30), S&P 500 (US.500), DAX 30 (DE.30), FTSE 100 (UK.100), CAC 40 (FRA.40), IBEX 35 (SPA.35) etc.. For example, if a trader believes that the U.S. economy will perform better in the future, he initiates long positions for CFDs based on the Dow Jones Industrial Average. However, if the trader predicts a deterioration of the economy, he initiates sales positions.
These operations can be traded on margin, which allows the adoption of exposures greater than the amount of money a person has in mind. It is important for everyone to understand that trading on margin magnifies the potential gains and losses. Another advantage is that you can make such purchase transactions (if you anticipate an increase) and sales transactions (if you anticipate a fall).