FTSE 100 Spread Betting Protection
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The FTSE 100 has experienced a massive fall. Like many markets world-wide the FTSE is in the middle of a bear market. Albeit a bear market with the odd impressive Bear Market Rally, like the one from mid-March to mid-May that put 600 points on the Index.
There are a large number of opportunities to profit from trading Indices like the FTSE 100 but what about a little protection. With each potential profit there is a potential loss. Here are four important spread betting tips to consider.
- It can be difficult to predict which way one company’s shares will go let alone a whole index of 100 companies. If you are not comfortable with spread betting or trading the FTSE 100 then the safest thing to do is not to speculate. If you do not speculate you will not lose any money on your bets. Of course that means you cannot profit either
- If you are used to share trading but less experienced with trading indices such as the FTSE 100 or Dow 30 then you can always start with a Practice or Demo Account. The Indices prices are delayed by around 10-20 minutes but that is OK for a Demo Account
- Apart from the options listed above, one of the best ways of limiting your downside is to trade with small stakes. Spread betting companies like Financial Spreads will let you spread trade from as little as £1 per point. So if the FTSE goes up / down 70 points you will win or lose £70 depending upon whether you bought or sold the market. If the FTSE price moves very quickly and goes up 125 points or perhaps drops 125 points then again your losses would only be 125 points x £1 per point = £125
Of course, spread betting allows you to increase your stakes. If you are more confident, and can afford it, you could trade £5 per point. So if the market moved 50 points you would win / lose 50 points x £5 per point = £250
- You can also use Stop Losses and Guaranteed Stop Losses to protect yourself against big swings. These are ways of telling the spread betting companies to close your bet if the market moves against you. Companies operate these in slightly different ways so check with your spread betting firm for details but essentially they work like this:
You are happy to risk £80 on the FTSE. Therefore you place a spread bet, for let’s say £1 per point with a Stop Loss set at 80 points, ie so your maximum loss is £80.
Some companies like Financial Spreads will keep your trade running if it moves your way and handily close your bet if the market moves against you. For example, if the FTSE moves a lot eg 120 points then:
- If it moves the way you bet by 120 points then you would win 120 points x £1 per point = £120
- If it moves against the way you bet by 120 points your bet would be Automatically Stopped at 80 points and you would only lose you 80 x £1 = £80
The penalty for this security can be a slightly wider spread but the peace of mind is often worth it. Note that with markets that move quickly your Stop Loss may be activated at the next price eg 85 points rather than 80 points.
In the current environment there are clearly a lot of trading opportunities but make sure you plan for the worst and protect your funds before you aim to be the next star trader.
"FTSE 100 Spread Betting Protection" written by RThomas, last updated 25-Aug-2008
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