A stock index is a number that represents the combined value of a group of shares. The FTSE 100 tracks the hundred largest companies on the London Stock Exchange, the S&P 500 tracks five hundred large US companies, the DAX tracks the forty largest in Germany. You cannot buy an index directly, but you can buy a CFD whose price follows it, and that is what most retail index trading is.
Names and symbols
Brokers use their own names. The S&P 500 appears as US500, SPX500 or SP500. The Dow Jones is US30. The Nasdaq 100 is USTEC, NAS100 or US100. The FTSE 100 is UK100, the DAX is DE40 or GER40, the Nikkei is JP225 and the Hang Seng is HK50. The underlying market is the same; the symbol, the contract and the price feed belong to the broker.
Cash and futures CFDs
Most index CFDs offered to retail traders are cash CFDs, priced from the index's current value and adjusted daily for financing and dividends. When a company in the index pays a dividend, the index falls by that amount, and the broker credits long positions and debits short ones to compensate. Some brokers also offer futures-based CFDs that follow the exchange-traded futures contract, carry no daily financing, and expire on a set date. For an automated system the cash CFD is the more common and simpler choice.
Points and contract size
Index CFDs move in points, and each broker states what one point is worth on one lot. On many brokers one lot of US500 is worth $1 per point; on others it is $10. The minimum volume also varies. A move from 5,000 to 5,050 on the S&P 500 is 50 points, and on one lot is worth $50 at one broker and $500 at another. Before an EA is allowed to trade an index, the contract specification for that symbol at that broker has to be read.
Hours and gaps
Index CFDs trade for most of the 24-hour day but not all of it. Each has a daily break of an hour or so, and the underlying exchange is open for a fraction of the time the CFD is quoted. The US indices are most active between 2.30pm and 9pm UK time, the DAX from 8am, the FTSE from 8am to 4.30pm. Outside those hours spreads are wider and moves are thinner.
Because the underlying exchange is closed overnight and at weekends, index CFDs gap. News released while the US market is closed shows up as a jump at the next open. A stop loss placed below Friday's close can be filled well below it on Monday.
You buy one lot of DE40 at 18,200 with a 100-point stop, on a broker where one lot is worth €1 per point, risking €100. On a broker where one lot is €25 per point, the same order risks €2,500. Same index, same stop, same lot number, twenty-five times the exposure.
An EA that trades several indices needs three things from each one. The right symbol, mapped from the broker's naming to the market the EA expects. The point value per lot, read from the specification, so that sizing is correct. And the session times, so that it does not attempt to trade in the daily break and knows when a daily bar opens and closes at that broker.
Gaps are the other consideration. An index position held overnight can be stopped out at a much worse price than the stop, and an EA's backtest should show the trades that gapped through their stops rather than assume every stop was filled at its level. Index strategies that hold for days must accept gap risk as part of the cost of the exposure; the wide stops that such strategies use are partly a recognition of it.