In plain English
What Index CFD means
An index is a calculated measure of a group of shares; it cannot normally be bought directly. An Index CFD instead creates an over-the-counter contract between the client and provider. The gain or loss follows the quoted movement of the selected index, multiplied by the contract size. Providers may quote cash-index and futures-index versions, which can have different expiry and financing arrangements.
Why it matters
An Index CFD can concentrate exposure to an entire market or sector, but it still carries leveraged-loss, execution, pricing and provider-counterparty risk. The quoted CFD may also reflect the provider’s spread, contract specification and adjustments. Holding a long position through an index constituent’s ex-dividend date can result in a dividend adjustment; a short position may receive the opposite debit.
Example
Suppose a provider quotes an index at 5,000.0/5,001.0 and one contract is worth $1 per index point. A trader buys at 5,001.0 and closes at 5,021.0. Ignoring spread beyond entry and exit, commissions, financing and taxes, the 20-point rise produces a $20 gain. A 20-point fall would produce a $20 loss.
Quick answers
Common questions
Does an Index CFD give me shares in every company in the index?+
No. It is a derivative contract referencing index-price movements. The client does not own the constituent shares and normally receives none of the ownership rights attached to them.
Why can two index CFDs have different prices?+
A cash-index CFD and a futures-index CFD may use different reference prices. Their quotes can differ because of expiry, interest-rate expectations, expected dividends, provider spreads and other contract terms.
Sources