A stock index is simply an index of market prices for a particular set of stocks. For example the FTSE 100 is a weighted index of the market prices for the largest 100 companies – measured by market capitalisation – that are listed on the London Stock Exchange. They are used as a barometer for the overall performance of companies within the market, although occasionally are mistakenly used as a measure or representation of the performance of the national economy. This is not always the case, however, as many of the larger companies within a stock index will be multinationals and so the index will be influenced by the wider, global economy and not just that of its ‘home nation’.
Indices are the most commonly traded markets in the world because they are the most widely discussed and they are generally seen to be influenced mostly by news and sentiment. The most common indices for spread betting are referred to as ‘national’ indices and include, but are not restricted to, the following:
- FTSE 100
- Dow Jones IA
- S&P 500
- NASDAQ 100
- DAX 30
- CAC 40
- Nikkei 225
Index spread betting provides traders with a way to trade in the financial markets without having to deal with share ownership and the associated taxation. Traders are not restricted to trading the index of their own nation and even when trading that of another nation they are able to do so in their native currency.
Stock indices can be traded in one of two ways, either through a short-term daily bet or through a longer-term futures bet. The daily bet allows traders to open a position immediately and expires at the end of the trading day, while a futures bet allows the trader to gain exposure to the market over a longer period of time. It is possible to roll-over a rolling daily bet to the next trading day but there will generally be a charge for this service and so it is important to determine how long you wish the position to be open for prior to placing your bet. Futures bets tend to be more common among traders than the daily bet because the daily price fluctuations are small and so do not often offer up the opportunity for huge profits, however, over time there can be rather large swings in the market.
According to many professionals, trading stock indices is a hard graft as they are driven by news and sentiment leading their price movements to be somewhat irrational. Many spread betting firms offer demo accounts so you can practice trading a range of indices before diving straight in and some offer the opportunity to spread bet from as low as £0.50 per point – but make sure that you understand the initial margin requirements before even starting to consider trading.
Here are the current prices of some of the main indices that are traded: