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An indices broker will offer leverage trading. Leverage allows you to open a larger position by borrowing additional capital from the broker. At J&J PARTNERS, we offer 1:100 leverage on indices CFDs. This ratio means you can control $100 for every $1 you put into a position. You do not have to use the total leverage available. In fact, you should carefully calculate your sizing because all the money involved in the trade, including the leveraged capital, is your responsibility. You must return it to the broker after you close with no exceptions. Therefore, it is possible to lose more money than you have, leaving you with a debt to the broker.

Luckily, risk management strategies can help you avoid this scenario.

CFDs offer convenient access to global markets. Most markets have index ETFs for most major indices. However, CFDs are a cheaper alternative. ETF margin requirements are typically very high, and shares are more expensive. This makes it impossible to profit from short-term index price movements unless you have a lot of capital.

CFDs rely on leverage, but they are also better for those with limited capital because you only have to pay the difference between the price when you open and when you close the position.

For example, if you have an index CFD tracking the S&P 500 with an opening price of 3,600 and a closing price of 3,650, you earn 50 points in profit. If the index drops to 3,550, you owe 50 points. Though you need to cover the margin requirements if you use leverage, you do not have to purchase the CFD. You only need to cover the difference. This fact makes indices CFD trading much cheaper than ETFs.

With ETFs, you have to purchase the entire share. As you can see, CFDs are much better for taking advantage of small market moves than ETFs.

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