Asset Classes: Indices, Commodities, Equities and Digital Assets
This lesson describes the characteristics of index, commodity, equity and digital asset CFDs, including their trading hours, price drivers and the specific risks of each.
Risk note: educational content only. This article is not financial advice, investment advice, or a recommendation to buy or sell any instrument. Trading leveraged products can result in losses greater than expected, and each reader should understand the risks before trading.
Once the mechanics of a currency CFD are understood, the other asset classes available as contracts for difference operate on the same principles of margin, leverage, spread and financing. Each class nonetheless has characteristics that distinguish it in practice: the hours during which it trades, the economic factors that drive its price, the frequency and size of gaps, and the appropriate position size relative to its volatility. A trader who assumes that every instrument behaves like a major currency pair will encounter these differences at cost. This lesson describes each class in turn and the adjustments to process that each requires.
Index CFDs
An index CFD provides exposure to the aggregate price of a basket of listed companies, such as a national benchmark, through a single position. Indices tend to trend more consistently than individual instruments because idiosyncratic movements in constituent companies are averaged out, and they respond primarily to interest-rate expectations, broad economic data and shifts in general risk appetite. They are therefore among the more accessible instruments for a trend-following approach.
The principal structural feature is the gap between the close of the underlying cash market and its next open. Information released while the cash market is closed is incorporated into the price at the open, and an index may reopen substantially above or below its previous close. Because the monetary value of a point on an index can be large, the leverage available on index CFDs is frequently lower than on major currency pairs. Current leverage and contract specifications for each index are stated on the trading conditions page.
Commodity CFDs
Precious metals, principally gold and silver, exhibit characteristics of both a currency and a store of value. They tend to strengthen during periods of financial stress or declining real interest rates, when participants seek assets that are not a liability of any issuer. Their price is quoted in United States dollars, so movements in the dollar exert a direct influence on the price.
Energy commodities, principally crude oil, are driven by physical supply and demand. Weekly inventory reports, production decisions by major exporting countries and geopolitical events affecting supply routes can each produce large and rapid price movements. Commodities therefore have a calendar of scheduled data distinct from that of currencies, and a trader holding a position in crude oil should know the timing of the weekly inventory release before the position is carried through it.
Equity CFDs
An equity CFD tracks the price of an individual listed company without conferring ownership of the underlying share. The holder of the CFD has no voting rights and no direct entitlement to dividends. Open positions are, however, generally subject to a dividend adjustment on the ex-dividend date: a credit to long positions and a debit to short positions, reflecting the change in the share price that the dividend produces.
Equity CFDs trade only during the hours of the exchange on which the underlying share is listed, unlike currencies and most indices. The most significant risk specific to the class is the scheduled earnings release, which is typically published outside exchange hours and can produce a gap at the next open that a stop-loss cannot prevent, since the stop is executed at the first available price after the gap rather than at its stated level.
- Indices: gap between cash close and open; driven by rates and broad economic data; leverage often lower than currencies.
- Commodities: driven by inventory data, production decisions and geopolitics; sharp movements on scheduled releases.
- Equities: exchange hours only; dividend adjustments; gap risk at earnings releases.
- Digital assets: continuous trading including weekends; widest daily ranges; thinnest liquidity at weekends.
Digital asset CFDs
Digital asset CFDs, of which Bitcoin is the most widely traded, are priced continuously, including at weekends when currency, index and equity markets are closed. Weekend liquidity is the thinnest of the week, and movements during that period can be large in the absence of significant news. Daily ranges that would be exceptional in a major currency pair are routine in this class.
The consequence for process is that position size must be determined by the volatility of the instrument rather than carried over from another class. A position of a given number of lots in Bitcoin represents a different order of risk from the same number of lots in EUR/USD, and the fixed fractional method described in Lesson 14 produces a materially smaller position when the stop distance appropriate to the instrument's range is used. Traders should also decide in advance whether positions will be held over weekends.
Common principles across asset classes
Across all four classes, the principles established earlier in the course continue to apply. Required margin is calculated as (Lots × Contract Size × Market Price) ÷ Leverage, with the applicable leverage determined by the instrument and by the dynamic leverage schedule. Positions held past the daily rollover incur overnight financing, with the three-day adjustment applied once a week. The spread, the contract size and the trading hours of each instrument are stated on the trading conditions page and the trading hours page.
The practical adjustment for each class is therefore not a different method but a different set of inputs to the same method: the stop distance reflects the instrument's typical range, the position size follows from that distance, the calendar of scheduled events is consulted for the relevant class, and the decision to hold a position through a market closure is taken deliberately rather than by default.