Index and share CFDs
What you learn in 3 minutesAn index CFD tracks a basket of companies, so one position moves with the whole market. A share CFD tracks one company, so its price can jump on that company's own news. Both cost money to hold: you pay or receive financing every day, and a dividend or a share split changes the position while you hold it. A currency pair such as EUR/USD has none of those events, which is why the same account can behave very differently on the two instruments.
Two index CFDs, two price steps
| Step | Amount | Note |
|---|---|---|
| US30 index CFD, one point | KSh 1,000 | A common contract size is one unit of the index per point; at a rate of KSh 100 to the dollar, one point is 10 dollars, which is KSh 1,000. Contract sizes vary between brokers, so check yours. |
| US30 index CFD, 20 points | KSh 20,000 | 20 points x KSh 1,000 per point. |
| Local index CFD, one point | KSh 100 | If the contract is 0.1 units of the index per point, one point is 1 dollar, which is KSh 100 at the same rate. |
| Local index CFD, 20 points | KSh 2,000 | 20 points x KSh 100 per point. The same 20-point move is ten times smaller in money. |
| US30 trading hours | Around the clock | Index CFDs often trade nearly 24 hours on weekdays, but the underlying exchange has set sessions. Hours vary between brokers. |
| Local index trading hours | Exchange session only | A local index CFD usually follows the exchange's own opening and closing times, so it may be closed when US30 is open. |
The broker may round the price step, quote a wider spread outside the main session, and add a daily financing charge. A dividend paid by a company in the basket may be credited or debited to your account, and a share split changes the number of units you hold. These rules vary between brokers.
The mistake people make here
The common mistake is to treat an index CFD like a currency pair and leave it open for days without checking the calendar. A dividend or a share split can change the position size overnight, and financing is charged for every day it stays open. Before you place the order, read the contract details for that instrument: the price step, the trading hours, and what happens on a corporate event. If those three things are not clear, the position is not ready to open.Check yourself
A local index CFD has a contract size of 0.1 units per point and the index moves 30 points. What is the profit or loss in shillings if one dollar is KSh 100?
One point is 0.1 x 1 dollar = 0.1 dollars, which is KSh 10. 30 points x KSh 10 = KSh 300.
EUR/USD is at 1.0850 and you hold one standard lot. One pip is 10 units of the quote currency. What is one pip worth in shillings if one dollar is KSh 100?
10 dollars x KSh 100 = KSh 1,000 per pip.
US30 moves 15 points on a contract of one unit per point, with one dollar at KSh 100. What is the change in shillings?
One point is 1 dollar, which is KSh 100. 15 points x KSh 100 = KSh 1,500.
In Kenya
- Regulator
- The Capital Markets Authority (CMA) licenses and supervises investment firms in Kenya.
- Money
- The shilling, written KSh (KES), is the currency used for deposits, withdrawals and account statements.
- Funding methods
- M-Pesa and bank transfer are the usual ways to move money in and out of a trading account.
- Instrument in examples
- EUR/USD, around 1.0850, is used for pip calculations because one pip on one standard lot is 10 units of the quote currency.
- Contract sizes
- Contract sizes, trading hours and financing charges for index and share CFDs vary between brokers, so read the contract details before trading.