Trading index CFDs: point value, financing, gaps and dividends

An index CFD is a contract with a provider that pays you, or charges you, the change in a stock index's level multiplied by a fixed amount per point. If you buy a CFD on an index at 20,000 with a value of 1 euro per point and close it at 20,150, you make 150 euros before costs; if it falls to 19,850 instead, you lose 150 euros. You never own the shares in the index.

That is the whole idea, but the details are where traders lose money they did not expect to lose: different providers define contract size differently; there are two families of index CFD, priced in different ways; leveraged positions held overnight pay financing; price indices trigger dividend adjustments; and indices often jump when the underlying stock market opens. This guide works through each of those with numbers.

If you are new to CFDs in general, start with what is a CFD, and if you want to understand the indices themselves, see what is a stock index.

How an index CFD is quoted

An index CFD has a bid and an ask in index points, for example 20,000.0 / 20,001.5. The difference, 1.5 points here, is the spread. You buy at the ask and sell at the bid, exactly as with currency pairs; our guide to reading a quote covers the mechanics.

Your profit or loss is:

• (closing price − opening price) × point value × number of contracts, for a long position, and
• (opening price − closing price) × point value × number of contracts, for a short position.

The point value is the amount of money one index point is worth per contract. It is set by the provider, not by the index. Common conventions include 1, 2, 5, 10 or 25 units of the index currency per point for one lot, and many providers also allow fractional sizes. One provider's "1 lot" of a US index might be worth 1 dollar per point; another's might be worth 10. Always read the contract specification before you trade, and size positions in money terms, not lots.

Worked example: profit and loss

Illustrative numbers only. An index CFD trades at 20,000.0 / 20,001.5, quoted in euros. The provider's contract size is 1 euro per point per lot. You buy 3 lots at 20,001.5.

• Exposure (notional value): 20,001.5 × 1 × 3 ≈ 60,004 euros.
• The index rises and you sell at the bid of 20,121.5. Gain: (20,121.5 − 20,001.5) × 1 × 3 = 360 euros.
• If it falls and you sell at 19,881.5 instead: (19,881.5 − 20,001.5) × 1 × 3 = −360 euros.

Notice that the spread was paid on the way in. Immediately after opening, the position shows a loss of 1.5 × 3 = 4.5 euros, because it is valued at the bid. The profit and loss calculator does this arithmetic for any size.

Margin and leverage

A CFD is leveraged: you put up a deposit, the margin, and gain or lose on the full exposure. For retail clients in the EU, ESMA rules cap leverage on index CFDs at:

• 20:1 for major indices, a defined list that includes the S&P 500, Dow Jones Industrial Average, Nasdaq 100, Nasdaq Composite, FTSE 100, DAX, CAC 40, Euro Stoxx 50, Nikkei 225 and ASX 200, which means a minimum margin of 5% of the exposure.
• 10:1 for other, non-major indices, a minimum margin of 10%.

Providers can require more than the minimum, and often do in volatile conditions. The UK FCA applies the same limits to UK retail clients. See ESMA leverage limits and negative balance protection for the full set of measures.

Worked example: margin

Continuing the example above, 3 lots at 20,001.5 with 1 euro per point is an exposure of about 60,004 euros. At 20:1, the minimum margin is 5% of that: about 3,000 euros.

Now consider what a 5% move means. 5% of 20,001.5 is about 1,000 points. On 3 lots at 1 euro per point that is a 3,000 euro loss: the entire margin. Index moves of that size do happen, sometimes within days and occasionally within a single session. The 50% margin close-out rule for retail clients would normally close the position well before the full margin is gone, but that only stops the loss; it does not undo it. Our guide to margin calls and stop-outs shows how the close-out works, and the margin calculator shows the margin for any size.

The point is not that leverage is bad by definition. It is that the margin is not your risk. Your risk is the exposure. Many traders size index positions by how much margin they can afford, which leads to positions far too large for their account. Sizing from the stop-loss distance is the safer habit; see position sizing and the position size calculator.

Cash index CFDs versus futures-based index CFDs

Providers usually offer two kinds of index CFD, and they are priced and charged differently.

Cash (undated, rolling) index CFDs

A cash index CFD has no expiry. It is meant to track the index's current, or "spot", level. Because index futures trade almost around the clock while the underlying shares do not, most providers derive the cash price from the nearest futures contract, adjusted for fair value: the difference between the futures price and the spot index that reflects interest rates and expected dividends until the futures expiry.

Cash CFDs are the default choice for short-term trading because they have the tightest spreads at most providers. Their costs, other than the spread, come from two adjustments:

• Overnight financing, charged or credited each night a position is held past the provider's daily cut-off.
• Dividend adjustments, applied when constituents of a price index go ex-dividend.

Futures-based (dated, forward) index CFDs

A futures-based CFD is priced from a specific futures contract and expires on a fixed date, typically quarterly in March, June, September and December, to match the futures cycle. Its price already includes the cost of carry and the expected dividends until expiry, which is why it usually trades at a different level from the cash CFD on the same index.

Because those costs are built into the price, futures-based CFDs usually have no daily financing charge and no separate dividend adjustments. The trade-off is a wider spread, and an expiry: if you want to keep the position beyond expiry, it must be closed and reopened in the next contract, either by you or automatically by the provider. Automatic rollovers are often charged a spread or a fee, and the price of the new contract will be different from the old one.

Which is cheaper?

It depends on how long you hold. As a rule of thumb, for positions held for hours or a few days, the tighter spread of a cash CFD usually outweighs a few nights of financing. For positions held for many weeks, financing on a cash CFD accumulates every night, and a futures-based CFD can work out cheaper despite its wider spread. The only reliable way to decide is to calculate both from your provider's own published rates; our guide to comparing trading costs shows how to build an all-in figure.

Overnight financing on cash index CFDs

Financing is the cost of the leverage. The provider is, in effect, lending you most of the exposure. The typical formula is:

• Daily financing = exposure × (benchmark rate ± provider's markup) ÷ 365 (or 360, depending on the currency's convention).

The benchmark is usually an overnight interest rate in the index's currency, such as €STR for euro indices, SONIA for sterling and SOFR for dollars. Long positions pay the benchmark plus a markup. Short positions receive the benchmark minus a markup, which, when the benchmark is low, often means shorts pay too. The mechanics are the same as for forex swaps; see swap and overnight financing.

Many providers charge three days' financing on the Friday night for index CFDs, to cover the weekend, rather than on Wednesday as with spot forex. Check the provider's schedule.

Worked example: financing

Illustrative numbers only. You hold a long cash CFD with an exposure of 60,000 euros. Assume the benchmark rate is 2.0% and the provider's markup is 2.5%, so you pay 4.5% a year, calculated on a 360-day basis.

• One night: 60,000 × 0.045 ÷ 360 = 7.50 euros.
• One week (seven nights, including the weekend): about 52.50 euros.
• Three months (around 90 nights): about 675 euros.

Compare that with the spread of 1.5 points × 3 lots = 4.50 euros paid to open, and a similar amount implied at close. For a one-day trade the spread dominates; for a three-month position, financing is by far the larger cost. Note that the exposure changes as the index moves, so the daily charge changes too.

Dividend adjustments

When a company in a price index such as the S&P 500, FTSE 100 or Nasdaq 100 goes ex-dividend, its share price drops by roughly the dividend, which pulls the index down slightly. That drop is a mechanical result of the payout, not a market move, so cash index CFD providers apply a dividend adjustment to keep the contract fair:

• Long positions are credited the index-point value of the dividend.
• Short positions are debited the same amount.

For the FTSE 100 or S&P 500, dividends trickle through almost every week, with heavier periods during the year. The DAX is different: its headline figure is a total return index that already reinvests dividends, so there is no ex-dividend drop to compensate, and cash DAX CFDs normally carry no dividend adjustments.

Worked example: a dividend adjustment

Illustrative numbers only. On one day, several members of a price index go ex-dividend, and the provider calculates that the combined effect on the index is 4.2 points. You hold 3 lots at 1 euro per point.

• Long: credited 4.2 × 1 × 3 = 12.60 euros.
• Short: debited 12.60 euros.

The adjustment is designed to offset the price drop. It is not a gain for longs, and short sellers who are surprised by these debits should remember that the index fell, in their favour, by about the same amount. Futures-based CFDs do not apply these adjustments because expected dividends are already reflected in the futures price. For more on how dividends work at the share level, see dividends and corporate actions.

Trading hours and sessions

The shares in an index trade on one exchange with fixed hours. Index futures trade for much longer, close to 23 hours a day on weekdays for the main US contracts, and that is what lets providers quote index CFDs outside the cash session. So most index CFDs have two distinct periods:

• The cash session, when the underlying exchange is open. Liquidity is deepest and spreads are usually tightest.
• The out-of-hours session, when the CFD price is derived from futures only. Spreads are often wider and moves can be sharper because liquidity is thinner.

Some providers also have short daily breaks when the index CFD is not quoted at all. The stock exchange hours tool shows which major exchanges are open in your time zone.

Opening gaps

An index can open the cash session at a level noticeably different from where it closed the day before, or from where the CFD was trading out of hours. This is a gap. It happens because:

• news, earnings or economic data arrived while the underlying shares could not trade, and
• the opening auction of the exchange sets the first prices of many shares at once, which recalculates the index in one step.

For cash CFDs that track futures out of hours, the overnight gap is often smaller, because the futures have already moved. But weekend gaps, between Friday's close and Sunday or Monday's reopening of futures, can be large, and so can gaps after major events.

A stop-loss order does not guarantee your exit price. If the market gaps through your stop, it is filled at the next available price, which can be much worse. Some providers offer guaranteed stops for a premium. Our guide to gap risk and weekend risk explains how to size for gaps and how guaranteed stops work, and slippage explained covers execution beyond gaps.

Spreads and other costs

Index CFD spreads vary by index, provider and time of day. Typical patterns:

• Spreads are tightest in the cash session of the underlying market and widen out of hours.
• Spreads widen around major data releases and around the cash open and close.
• Providers often publish a "minimum" or "from" spread that applies only at the best of times. Ask for typical or average spreads instead; see why spreads widen.

Other costs to look for include a fee for guaranteed stops, rollover charges on futures-based CFDs, currency conversion if the index is quoted in a currency different from your account's, and the dividend adjustments and financing already covered.

Common mistakes

• Comparing "1 lot" across providers. The point value differs. Work in money per point.
• Sizing from margin, not exposure. At 20:1, a 5% move against you equals your whole margin on a fully leveraged position.
• Holding cash CFDs for months without adding up the financing. It accumulates every night, including the weekend.
• Being surprised by dividend debits on shorts. They are an offset, not a penalty, but they are real cash movements.
• Trading the out-of-hours session as if it were the cash session. Spreads and liquidity are different.
• Trusting a stop-loss to cap the loss through an open. Gaps fill stops at worse prices.
• Forgetting that the cash and futures-based versions of the same index trade at different levels. A chart of one cannot be used to place exact orders on the other.

Most retail CFD accounts lose money; providers publish the percentage on their websites, and our guide on why most retail CFD traders lose looks at the reasons. Index CFDs are not an exception. Read the provider's risk warning and contract specifications before trading.

Frequently asked questions

What is the difference between a cash and a futures index CFD?

A cash index CFD has no expiry, tracks the current index level and charges overnight financing and dividend adjustments. A futures-based CFD tracks a specific futures contract, expires on a fixed date, and builds financing and expected dividends into its price, so it usually has no daily financing but a wider spread.

How much is one point worth on an index CFD?

It depends on the provider's contract specification. Common sizes are 1, 2, 5, 10 or 25 units of the index currency per point for one lot, and many providers allow fractions. Always check before trading and think in money per point rather than lots.

Why was my index CFD credited or debited a small amount overnight?

Most likely either overnight financing or a dividend adjustment. Financing is charged on cash CFDs held past the daily cut-off. Dividend adjustments are applied when index members go ex-dividend: longs are credited and shorts are debited. Your account statement should label each line.

Why does the DAX CFD have no dividend adjustments?

Because the headline DAX is a total return index that assumes dividends are reinvested, so it does not fall when members go ex-dividend. Price indices like the FTSE 100 and S&P 500 do fall, so CFDs on them include adjustments.

Can I trade index CFDs when the stock market is closed?

Often yes, because providers derive prices from index futures, which trade for much longer hours. Out-of-hours spreads are usually wider, liquidity is thinner, and the price can gap when the cash market opens.

Which is cheaper for a long-term position?

It depends on your provider's rates and how long you hold. Cash CFDs have tighter spreads but charge financing every night; futures-based CFDs have wider spreads and rollover costs but no daily financing. For multi-week positions it is worth calculating both from the provider's published figures.