Stocks represent shares in an individual company. The price of the shares moves solely based on the company’s performance, finances, and outlook. Meanwhile, indices track a group of companies that represent an industry or a nation’s economy.

If you trade share CFDs, your analysis will focus on financial data and charts for one company. However, with indices CFD trading, you will look at the economy and the stock market as a whole.

An index gives you exposure to an entire market sector. If you wanted to profit from a booming US economy, you could purchase CFDs tracking the S&P 500, for example.

Also, you can use leverage to increase the size of your position without having to contribute more capital. The capital requirements for indices CFD trading are much lower than those for trading index ETFs or futures.

CFDs also track the underlying index. Other derivatives, such as options on index ETFs or futures, do not mirror the price movements as closely due to expiration and time decay, market expectations, and other factors.

Since an index consists of different company stocks, the performance of influential companies, industries, or sectors can impact the price of indices CFDs. However, other factors are also important.

• Geopolitics can either inspire confidence in the markets or cause uncertainty. Treaty announcements, conflicts, international disagreements, and political changes can cause bear or bull markets depending on whether investors see the changes as positive or negative.
• Interest rate changes and other monetary policy decisions, which usually come from a central bank, can cause a country’s stock market index prices to fluctuate.
• Government policies, such as trade deals and corporate tax rate changes, can affect stock market index performance. Generally, more pro-business decisions, such as lower tax rates or incentives for certain industries, cause index prices to rise. Meanwhile, tax increases, new regulations, and other factors slowing business processes can cause a drop in index value.