What an index CFD is

An index is a rule, not an asset 

A stock index is the output of a published calculation. It takes a defined list of listed companies, the constituents, applies a rule deciding how much each counts, and reduces the list to one number, republished every few seconds while those shares trade. The number is in points, and points carry no meaning alone: a level is a ratio to what the same calculation produced on a base date, scaled by a divisor.

Two decisions define any index, and both belong to the index provider rather than to the market. The first is membership: which companies are on the list, and what qualifies one to join or forces it out. The second is weighting: how much each member's price movement contributes. An index does not emerge from trading. It is produced from trading by a rule someone wrote down in advance.

Membership changes make that mechanism visible. When one company replaces another the constituents' combined value changes at that instant, but the level must not jump, because a jump would report a movement that did not happen. The provider adjusts the divisor so the level after the substitution equals the level before it. The same adjustment absorbs issuance, buybacks and splits. What the divisor absorbs is, by construction, not a market movement.

How much each constituent counts 

Weighting is the part of the construction most often skipped and most often misread. Three schemes cover almost every index in wide use, and applied to the same companies they produce numbers that move differently.

• Market-capitalisation weighting. Each constituent counts in proportion to its market value, its share price multiplied by shares in issue, so the largest companies dominate. Most national benchmarks use it with a free-float adjustment, counting only shares genuinely available to trade rather than blocks held by founders or governments.
• Price weighting. Each constituent counts in proportion to its share price alone, with no reference to company size, so a high-priced share moves the index more than a far larger company whose shares trade lower. An older construction.
• Equal weighting. Every constituent counts the same regardless of size or price, with weights reset on a schedule as prices drift apart.

The consequence of capitalisation weighting is concentration. A few of the biggest constituents can account for much of the movement, so the number can be pulled one way while most members go the other. Index traditions disagree about whether that is a defect: one view holds it over-represents whatever has already risen, the other that it represents precisely what the market owns.

What the contract actually references 

An index cannot be bought, because there is nothing to deliver. Holding it literally would mean holding every constituent in its exact index proportion and rebalancing continuously as prices and membership changed. A CFD on an index therefore does not reference the index. It references a traded price for it, and that price comes from one of two places.

A cash index, also called a spot index, is quoted around the current level of the index and has no expiry, so a position can be held indefinitely. With no expiry to carry the cost, an overnight position attracts a financing adjustment, and a dividend adjustment applies as constituents go ex-dividend. A futures-based index CFD is quoted instead from the exchange-listed futures contract on the same index. That contract expires, so a position outliving it is rolled into the next, and the roll can move the quoted price for reasons unrelated to the index. Both settle in cash on the difference between opening and closing price, and neither delivers a share.

Why an index CFD trades for longer than the shares inside it 

The constituents of a national equity index trade on one exchange during that exchange's session, so the cash level is live only while that session runs and freezes at the close. The information moving those companies does not observe the session: rate decisions, releases in other time zones and other regions' equity sessions arrive while the home exchange is shut.

The exchange-listed future on the index trades far longer than the cash session, in most cases close to around the clock on weekdays. That is what gives an index CFD a continuously priced reference outside cash hours: the provider prices against the traded future, not the frozen cash level. An index CFD quotes the hours of its reference, not the hours of the shares in it, which is why the schedule is set per instrument.

Two consequences follow, and practitioners treat both as ordinary. Fewer participants quote the reference outside the cash session, so spreads are typically wider then and less size is available at a given price. And because the session opens against hours of accumulated information, its first prints can sit some distance from the previous close. That distance is a gap, and a stop instruction does not prevent one: a stop names the level at which a position is closed, not the price at which it fills.

What moves the number 

Four things move an index level, and separating them is most of what reading an index carefully consists of.

1. Constituent news, in proportion to weight. An earnings release from the largest constituent moves the index materially, while the identical release from the smallest barely registers. The worked example above is that arithmetic in full.
2. Interest rate expectations. Earnings expected in the future are discounted into a value today at a rate that moves with prevailing interest rates, and that discounting applies to every constituent at once. It is the usual explanation offered when an index moves sharply on a day no company reported anything.
3. The currency of denomination, read against the revenue base of the members. An index whose constituents earn most of their revenue abroad translates those earnings back into a home currency, so a weaker home currency raises their translated value. An index of domestically focused companies has no such relationship.
4. Flows into and out of equities as a class, including the mechanical demand from funds that track the index and must hold its constituents in index proportion.

One convention deserves naming with its limits attached. Commentary routinely describes an index as a proxy for an economy. That is defensible, since a country's largest listed companies account for much of its measurable output, and incomplete, because an index excludes private companies, the public sector and the informal economy entirely and tilts toward whichever sectors dominate its market value. Index levels and national output can diverge for long stretches, and a divergence is not evidence that either number is wrong.

Where the per-instrument detail lives 

Construction is common to every index. The tradeable details are not: the reference an instrument is priced from, what one index point is worth, and the hours it quotes are set per instrument. YAL lists 20+ stock indices on MetaTrader 5, with the per-instrument detail on the indices market pages and the schedule on the answer on trading hours.