An index position is a bet on a market rather than a company. Buying the S&P 500 means you do not need to be right about which technology firm wins, only about the direction of the market as a whole, which is why indices are often where traders go after being burned by single stocks.
Brokers offer these as cash indices, which track the spot level and pay financing overnight, or as futures-based products with a fixed expiry. The two look nearly identical on a chart and cost quite different amounts to hold.
What it costs
Index spreads are quoted in points and are usually tight during the underlying market's own session and much wider outside it. Cash indices pay or receive financing overnight and are adjusted for dividends when constituents pay them - an adjustment that catches out anyone holding a short position through a dividend date.
What to watch for
- Out-of-hours pricing on a cash index is a broker's estimate, not a real market. Spreads reflect that.
- Dividend adjustments on short positions are a genuine cost and are not always flagged clearly.
- "Germany 40" and "DAX" may be the same product with different names and different spreads at the same broker.
What separates a good broker here
- Spreads quoted in index points, with the session they apply to
- A stated dividend adjustment policy
- Whether the product is cash or futures-based
- Margin requirements per index, which vary more than people expect
