CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

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Why trade indices?

Go long or short When index trading with CFDs, you can go long or short. Going long means you are buying a market because you expect the price to rise. Going short means you are selling a market because you expect the price to fall. With CFDs, your profit or loss is determined by the accuracy of your prediction, and the overall size of the market movement. Trade with leverage CFDs are leveraged products. This means you only need to commit a small initial deposit – known as margin – to open a position that gives you much larger market exposure. When trading with leverage, you should remember that your profit or loss is calculated using the entire position size, not just the initial margin used to open it. Hedge your existing positions An investor with a collection of different shares might short an index to protect themselves from losses in their portfolio. If the market enters a downturn and their shares start to lose value, the short position on the index will increase in value – offsetting the losses from the stocks. However, if the stocks increased in value, the short index position would offset a proportion of the profits which had been made. Alternatively, if you had a current short position on several individual stocks which feature on an index, you can hedge against the risk of any price increases with a long position on that index. If the index rises, your index position will earn a profit, counteracting a proportion of the losses on your short stock positions. With Capitality, you can use CFDs to trade indices. These products are financial derivatives, which means you can use them to speculate on indices that are rising in value, as well as falling. CFDs are a contract between two parties to exchange the difference in price from the point at which the contract is opened, to the point at which it is closed. Decide whether to go long or short Going long means that you are speculating on the value of an index increasing, and going short means that you are speculating on its value decreasing. If the economic outlook for an economy or sector looks good based on the performance of the companies on an index, a long position could help you realise a profit if the index increased in value. If the outlook is poor – possibly because large companies on a capitalisation-weighted index are underperforming – you might want to go short on the expectation that the index will fall in value. Set your stops and limits Stops and limits are essential tools for managing your risk while trading indices. A stop order will close your position automatically if it goes to a less favourable level than the current market price, while a limit order will close your position automatically if it goes to a more favourable market price. Open and monitor your trade When you think you’re ready to start indices trading, it’s time to open your trade. To do this, go to the market you want to trade on the IG trading platform – Wall Street for example. Next, decide whether you want to deal at the cash price or the futures price – and select buy if you think the price will rise, or sell if you think the price will fall. Enter your position size, and click ‘place deal’ to open your trade. Monitor your position, and close your trade when you want to take a profit or cut a loss.

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