Trading in CFDs gives you considerable advantages over conventional share trading. It is flexible as you can profit from price fluctuation of an underlying assets no matter which way the price moves. Moreover, CFDs are leveraged products and you can take positions on paying only a small percentage of the contract value as margin money. At the same time, trading in CFDs is risky business and one wrong move can result in losing the entire amount in your account.
One way of managing risks associated with CFDs is to place a stop loss order for every trade you open; the other is to trade in index CFDs. An index CFD provides a distinct advantage over other CFDs.
First up, most CFD providers do not charge brokerage on index CFDs and even if they do, it is a very nominal amount.
Investors with a portfolio of blue chip stocks are usually wary of selling them but often relent not having taken advantage of the sharp price movements. Indices are baskets of benchmark shares and trading in index CFDs is an excellent way of hedging a blue chip portfolio.
Index CFDs provide an unbelievable access to leverage. The margin money that a CFD provider requires you to pay on index CFDs can be as low as 0.5%.
No matter which way the markets move, the price of an index can never go to zero as the underlying reference of index CFD comprises a basket of top performing shares in an exchange.
Nevertheless, there is still a fair amount of risk involved in index CFDs. It is wise to use stop loss orders and also trade for small profits and avoid getting lured by promises of huge profits.
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