Stock indices, also referred to as equity indices, represent the overall price of a basket of underlying stocks. They give a representation of the overall picture of the stock market, as they comprise the largest companies in the industry sector to which their basket belongs. During any trading session, a stock index will move up or down based on an overall mathematical formula wherein each stock price contributes to the indices’ final price. Not all stocks that add up in the basket are treated as equal, and the overall price of a stock index is not as simple as an addition of the prices of the stocks divided by the number of stocks. Rather, more weight is given to the index from companies with larger capitalization. This means that if the stock of a specific large company falls for any reason, the overall index will follow it, even though the rest of the stocks in the basket might be stable. Generally, indices demonstrate a performance benchmark of the overall stock market with historical value. However, the underlying stocks that belong to the basket may change over time.
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When trading indices at Centrum Markets, long positions are charged with the current interbank rate plus an additional mark up, while short positions incur the current interbank rate minus the mark up. Swap rates are calculated according to the indices’ current interbank rate, and a three-day swap is calculated on positions from 00:00 GMT, Wednesday to Thursday. It should be noted that stock index financial derivatives are not for physical delivery and are not subject to any voting rights of the underlying stocks that represent the basket. Centrum Markets may change margin requirements for indices before earnings announcements or any corporate actions.
The margin requirement for stock index financial derivatives is not based on the leverage of your trading account. Rather, it is calculated according to the following: (Lots) x (Contract Size) x (Opening Price) x (Margin Percentage).
Certain stock index financial derivatives may be subject to dividend adjustments and paid into the trading accounts of clients who hold a buy position calculated as follows: (Index Dividend Declared) x (Position Size in Lots) = Dividend Adjustment. Sell positions trades are charged an amount as calculated by: (Index Dividend Declared) x (Position Size in Lots) = Dividend Adjustment. Financial derivatives on future indices are not subject to dividend adjustments.