Stock indices are traded in greater volume than any other form of spread betting with spread betting companies covering all the major global indices including the FTSE 100, Dow Jones, S&P 500, Japanese Nikkei and German DAX.
The FTSE 100 is a share index consisting of the 100 biggest UK companies, in terms of market capitalisation, that are listed on the London Stock Exchange. The FTSE 100 companies that the index comprises of are determined on a quarterly basis with the largest firms in the FTSE 250 being promoted should their market capitalisation rank them in the top 90 companies of the FTSE 100. Beginning in 1984, with a base level valuation of 1000, the FTSE has since reached a high of 6950.6 on December 30th 1999 and experienced several lows including a remarkable slide to below 3500 during the global financial crisis between mid-2007 and 2010. Following this fall the FTSE 100 has recovered well and briefly touched the 6000 mark early on in trading on May 31st 2011 – it is currently back around 5721 as of June 17th 2011.
The FTSE 100 Index is seen as a way of measuring how companies are performing in the market. It is also, somewhat inaccurately, believed to be a representation of the strength of the British economy. However, in 2006 approximately 60% of revenues generated by the FTSE 100 companies actually came from outside of the UK. When you consider that the index consists of the top 100 UK companies it should be a less surprising figure as the vast majority of companies of this size will engage in business internationally. On this basis, those looking to spread bet on the FTSE 100 should be aware that the index is influenced by the wider, global economy and not simply that of the UK.
This is illustrated by the fact that alterations in commodity prices have a greater effect on the FTSE 100 than any other financial index in the world. Oil and mining account for approximately 30% of the FTSE stock index, in terms of capitalisation, and as such, any significant rise or fall in the price of oil will have a noteworthy impact on price movements of the FTSE 100. For example, the recent BP oil spill accounted for 44% of the overall 13.7% fall in the FTSE index between April 20 and the end of June 2010. Companies from the mining sector account for approximately 11% of the index and, due to the cap-weighted system in operation within the index, have their fair say in FTSE price movements. However, since mining is no longer a major industry within the UK, the price effects upon the FTSE will be originating from mining that is taking place in countries in the Far East. Finally, on this subject, there is an inverse correlation between the FTSE 100 index and the value of the USD since the strength of the dollar is a significant determinant of the demand for commodities such as oil and gold – a lower value of the dollar makes these commodities a more financially attractive proposition.
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Capital Spreads Review Min Stake: £1 Min IMR: 100 Spread Size: 4 Points |
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WorldSpreads Review Min Stake: £1 Min IMR: 200 Spread Size: 4 Points |
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Spread-Ex Review Min Stake: £1 Min IMR: 100 Spread Size: 14 Points |
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City Index Review Min Stake: £1 Min IMR: 350 Spread Size: 4 Points |
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Finspreads Review Min Stake: £1 Min IMR: 350 Spread Size: 4 Points |
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Traders looking to spread bet on the FTSE tax free should be clear that since the index is, essentially, comprised of 100 different parts (constituents), combined with the reasons mentioned above, it is open to influence from both UK and World events. The FTSE index is, therefore, more difficult to predict with any significant accuracy with regard to its daily and long term price movements. One associated benefit is that due to the huge amount of money traded on FTSE futures the index does offer tight spreads to traders and is a 24 hour market.
The message we are trying to get across is that in order to be a successful trader of the FTSE 100 index, spread betters need to be sure they are knowledgeable about the constituent companies, their global involvements and the potential impact, direct and indirect, that they can have on the FTSE stock index.
Most spread betting companies offer three different types of spread bet with which clients can trade on the FTSE:
- Daily Rolling
- Daily Future
- Quarterly
Which one of these types of spread bet you decide to use will depend on the length of time that you expect, or wish, to hold the position open. Should you wish to hold the position open for a period of less than seven days then the daily cash bet would be more suitable. The quarterly bets are more geared towards spread betters looking to hold the position open for more than 7 days as it will involve less financing charges. You will encounter tighter spreads on the daily markets than on the quarterlies, but should you wish to roll the bet over to the next day you will incur a financing charge for every night you choose to do so. The quarterly spreads will be wider since the associated charges are built into the spread. With regard to the daily future bet, this generally goes unused as traders look to go one of two ways in terms of the length of time they wish their trade to be open.