Indices are the most popular form of CFDs. RCM has a large range of Indices from around the world to choose from, including the Australian S&P 200 Index, UK FTSE 100 Index, US E-mini S&P 500 and US DJIA Index.
A stock index is a good indicative measure of market performance. Indices such as the FTSE 100 and DJIA Index are baskets of blue chip stocks listed on the exchange and are generally a good measure of the current market sentiment. A change in the performance of any constituent stock in an index is reflected in a change in the overall value of that index.
Indices have the advantage of allowing traders to take a wider view of a basket of stocks rather than taking a view on one individual stock alone.
Online CFD and futures based indices are offered on both RCM MetaTrader 4 and cTrader Platforms.
Indices Spreads – Cash
RCM offers competitive spreads across all of our cash Indices, including the E-mini S&P 500 Index from 0.5 points, the FTSE 100 Index from 1 point, Xetra DAX Index from 1 point and S&P 200 Index from 1 point.
The following table shows the best available spread for our selection of global Indices.
|AUS200||S&P/ASX 200 Index||1|
|US30||DJIA Index||1 – 4|
|US500||E-mini S&P 500 Index||0.4|
|UK100||FTSE 100 Index||1 – 5|
|DE30||Xetra DAX Index||1 – 8|
|HK50||Hang Seng Index||8|
|USTEC||E-mini Nasdaq 100||2|
|F40||CAC 40 Index||1 – 6|
|STOXX50||Dow Jones EURO STOXX 50 Index||2|
|JP225||Nikkei 225 Index||7 – 8|
|US2000||Russell 2000 Index||0.3|
|CHINA 50||FTSE CHINA 50||13|
Please note: This table illustrates the lowest spreads available on these indices available during the opening hours of the trading session in the underlying market. Spreads may we wider when the underlying market is closed or during extended trading hours.
Buying the Australia 200 Index
Opening the Position
The price of the Australia 200 Index is 4950.00/4951.00. You are of the view that blue-chip stocks are undervalued so you decide to buy 2 contracts at 4951.00. (One contract is equal to $1 per index point). No commission is charged on Indices.
For every point that the bid quote on the Australia 200 Index rises above 4951.00 you will make a profit of $2 AUD, for every point the bid quote falls below 4951.00 you will lose $2 AUD.
Closing the Position
Four days later, the Australia 200 Index has risen to 4970.00/4971.00 and you decide to take your profit. You close your position by selling 2 contracts at 4970.00.
The gross profit on your trade is calculated as follows:
|Gross Profit on Trade||19.00 points x 2 contracts ($2 per point) = AUD $38.00|
To calculate the net profit you must include any financing or dividend adjustments. Financing adjustments are applied to Indices daily, in the case of a ‘long’ position interested is debited and in the case of a ‘short’ position interest is credited. Dividend adjustments are also applied whenever a stock in the relevant index goes ex-dividend.
You should be aware that if the market had moved in the opposite direction, you would have made a loss that could have exceeded your initial deposit.
Ex-dividend adjustment of an index represents the value of the dividends declared by the constituent companies during the ex-dividend date, expressed in index points. These Ex-Dividend adjustments are calculated by summing the Market Value of dividends, divided by the Latest Index Divisor.
Index divisor is a number used in the denominator of the ratio between the total value of an index and the index divisor (Investopedia). It is used to show changes in the value of the stock market over time.
To compute Market Value of Dividends,
|Company||Dividend (cents)||Shares (m)||Market Value of Dividend ($)||Ex-Dividend Adjustment|
|Total Ex-Dividend for AUS200 Index||2.44|
ABC, Index Divisor = 3582.80
Company A’s Dividend Market Value : 25843 x $0.3056 = $7897.62
Ex-Dividend Adjustment for Company A : 7897.62 ÷ 3582.8= 2.2
Company B’s Dividend Market Value : 10589 x $0.0821 = $869.36
Ex-Dividend Adjustment for Company A : 869.36 ÷ 3582.8 = 0.24
Therefore, Ex-dividend Adjustment for Index AUS200 : 2.2 + 0.24 = $2.44 per lot
How to determine if a client is entitled dividend from Index AUS200?
From the above example, let us assume that the ex-dividend date for Index AUS200 is on the of 18th August 2016.
Therefore, a client must have an open position for Index AUS200 before the 18th of August and it must remain open until the 18th August 2016, in order to have the dividend adjustment of $2.44 per lot. To determine if the dividend adjustment is added or deducted to the client’s account, will depend on whether it is a SELL or BUY on AUS200. If the client has 1 lot of BUY for AUS200, the client will be entitled $2.44 per lot. However, if it is a SELL of AUS200, the client will be deducted $2.44 per lot. The amount $2.44 per lot will be converted to the client’s base currency, before it is being deducted.
Since this is from index AUS200, the dividend adjustment will be AUD$2.44 per lot. Alternatively, if the index is US500, the dividend adjustment would be USD$2.44 per lot.
RCM EX- Dividends Excel sheet shows the expected Indices that will have their index points adjusted for the given week and the actual ex-dividend adjustment amount for each indices will be updated regularly in our Blog, Ex- Dividends Adjustments.
RCM Contract Specification Sheet provides further information regarding the Indices on offer their trading hours and spreads.