Index CFD Strategies

Index CFD Strategies Short term speculation
If you have a positive or negative view on a particular Index you can go long and short as you wish using leverage to maximise your potential returns. They are popular with individual investors because they can be used to take positions on the direction of a whole market without taking a view of the prospects for any particular company's shares. The very low margin rates available on Index CFDs  through Blue Index (as low as 1%) mean that Index CFD contracts are ideal for short-term speculation.  Indeed they are particularly suitable for intra day trading.

Hedging
There will be occasions when you feel the market may fall in the short term, this will in turn reduce the value of your equity portfolio. It can be a costly exercise to sell these shares and then buy them back once the market has corrected. A short Index CFD position can also be used as a rough, low-cost, hedge to protect a diversified share portfolio against such a market fall.

Pairs Trading
Index CFDs can also be traded in pairs. Index CFD Pairs trading involves going long one Index CFD whilst contemporaneously shorting another Index CFD. Both contracts should have the same contract value. This provides a directionally neutral position whilst maintaining sensitivity to the difference between these two Indices.  An example of a simple pairs trade would be if you believe one index is undervalued compared to another you can buy the cheaper Index whilst selling the expensive one (e.g. you think that a recent tech rally is overdone so you buy the S&P whilst selling the NASDAQ).

Sector Trading
As well as trading CFDs that track a particular stock index CFDs can also be traded that track a particular sector within these stock markets. Sector trading offers you the opportunity to take an overall view on a group of stocks without having to trade each stock individually. Sectors include stocks of companies operating within the same industry, e.g. Finance, Energy and Telecoms, which are amalgamated into separate tradable indices. You can now back your judgement by trading a sector rather than having to choose individual companies within that sector.

For further information on Trading Strategies please call the trading desk on +44 (0) 20 7398 2553.

These strategies are for discussion purposes only and should not be interpreted as any solicitation to trade. Any decision to trade will be dictated by market conditions and the client's requirements. Although there are no time limits on CFDs, they are most suited to short-term trading situations. CFD trading strategies can be discussed with your personal broker at Blue Index.