The SpreadBets guide to stock market index spread betting:
About Indices Spread Betting
The most popular spread betting markets are the ‘Stock Market Indices’.These indices represent the combined value of some of the largest companies in the world.
The FTSE 100 Index (aka UK 100) is the basis for the most popular spread betting market in the UK.
The FTSE 100 includes the likes of energies companies BP and Shell as well as banks like HSBC and Barclays.
By spread betting on the FTSE 100 to go up or down you are speculating on the aggregate movement of all of the stocks listed in the index.
A broad understanding of the markets is required owing to the variety of industries that are often represented.
Having said that, indices can make interesting trading given the nature of the markets, for example, large mining companies and financial institutions can heavily influenced the direction the FTSE 100.
So-called ‘defensive’ pharmaceuticals shares such as GlaxoSmithKline and Reckitt Benckiser are often less volatile and therefore tend not to move the FTSE 100 as much.
Other Popular Indices
3 other index markets are also very popular with spread bettors, namely:
- Dow Jones aka Wall Street aka US30
- S&500 aka US500 aka SPX500
- DAX 30 aka Germany 30
Live Stock Market Index Charts
If you’d like a particular chart, use the following in the market field in the above chart.
- Dow Jones – type ‘US30’
- DAX 30 – type ‘GER30’
- CAC 40 – type ‘FRA40’
- Australia 200 (ASX) – type ‘AUS200’
- Nikkei – type ‘JPN225’
- S&500 – type ‘SPX500’
- Etc.
Where Can I Spread Bet on Stock Indices?
 |
 |
 |
 |
 |
|
| FTSE 100 Daily |
 |
|
|
|
|
| FTSE 100 Futures |
|
|
|
|
|
| Wall Street (Dow) Daily |
|
|
|
|
|
| Wall Street (Dow) Futures |
|
|
|
|
|
| DAX 30 Daily |
|
|
|
|
|
| DAX 30 Futures |
|
|
|
|
|
| S&P 500 Daily |
|
|
|
|
|
| S&P 500 Futures |
|
|
|
|
|
| Other Indices |
|
|
|
|
|
Popular Index Markets
Some of the most popular indices markets include:- FTSE 100 – a share index that highlights the performance of the top 100 UK listed companies, as ranked by their market capitalisation. This index is also known in spread betting as the UK 100
- German DAX 30 – a share index of Germany’s top 30 companies in terms of order book volume and market capitalisation
- Dow Jones – a share index that reflects the performance of the top 30 American stocks. Also known in spread betting as ‘Wall Street’
- US S&P 500 – a share index that defines the broader US equity market by tracking the performance of the top 500 American stocks
- French CAC 40 – a share index of the 40 largest companies listed on Euronext Paris, the largest French stock exchange
- Japanese Nikkei 225 – Refers to the price-weighted average of the top 225 stocks in the Tokyo Stock Exchange
- AEX
- Australia 200
- FTSE 250
- Euro Stoxx
- Hong Kong Hang Seng
- Irish Stock Market
- NASDAQ 100
- Switzerland 20
- Spain 35
However, spread betting on indices is a leveraged form of trading and so whilst this increases your potential upside you can also lose more than your initial stake. This means that you should be fully aware of the potential benefits and pitfalls before placing any trades.
Worked Stock Market Spread Betting Example
If you want to spread bet on an index like the UK 100 (aka FTSE 100) then you might go to a website like FinancialSpreads.com.At the moment FinancialSpreads are offering a price of 6556.3 – 6560.3.
Therefore, you could speculate on the UK 100 to move higher than 6560.3 or to move lower than 6556.3.
With spread betting, investors trade on every unit the market increases or decreases; with the UK 100 market a unit is 1 point of the stock index’s price movement.
Let’s say you decide to stake £4 for every point the UK 100 rises or falls.
Buying – Speculating on the Stock Market Index to Rise
If you went long of the UK 100 at 6560.3 and the stock index rose then the market might be re-priced at 6601.6 – 6605.6. Therefore, you could close your trade by selling at 6601.6.P&L = (closing value of the market – initial value of the market) x stake per point
P&L = (6601.6 – 6560.3) x £4 per point stake
P&L = 41.3 points x £4 per point
P&L = £165.20 profit
Nevertheless, if the stock index had fallen to 6522.9 – 6526.9, you may want to close your trade to limit your losses. If so, you would sell at 6522.9.
With the same £4 per point stake:
P&L = (closing value of the market – initial value of the market) x stake per point
P&L = (6522.9 – 6560.3) x £4 per point stake
P&L = -37.4 points x £4 per point
P&L = -£149.60 loss
Selling – Speculating on the Stock Market Index to Fall
A key benefit of spread betting is that investors can short sell the markets, i.e. bet that the markets will drop.Initially, the market was priced at 6556.3 – 6560.3.
If you went short of the UK 100 at 6556.3 and the stock index fell then the quote could become 6517.2 – 6521.2. In that case, you could close your trade for a profit by buying at 6521.2.
P&L = (initial value of the market – closing value of the market) x stake per point
P&L = (6556.3 – 6521.2) x £4 per point stake
P&L = 35.1 points x £4 per point
P&L = £140.40 profit
The markets do of course rise, if the stock index had increased to 6584.1 – 6588.1, you may decide to close your trade to restrict your losses. Assuming this was the case, you’d buy at 6588.1.
Therefore, with the same £4 per point stake:
P&L = (initial value of the market – closing value of the market) x stake per point
P&L = (6556.3 – 6588.1) x £4 per point stake
P&L = -31.8 points x £4 per point
P&L = -£127.20 loss
- UK 100 (December) spread betting market taken as of 12-Aug-14.
- One thing to note is that this is a futures trade and so it has a particular settlement date when it is set to close. For this UK 100 (December) futures market the settlement date is 19-Dec-14.
- For an example of a ‘daily’ market, rather than a futures market, please see How to spread bet on the FTSE 100 Rolling Daily
Stock Market Index Practice Accounts
The following companies offer free practice accounts, i.e. accounts that you can use to have a go at spread betting on the various stock index markets without risking your money.Advantages of Stock Market Index Spread Betting
- Profits from spread betting are tax free*.
- There are no broker’s fees or commission charges.
- Whilst you can trade over the phone you can also place spread bets online. There is an additional convenience in that a wide range of indices and other markets can be traded outside normal market hours.
- There is a wide range of trading markets on offer which not only includes indices but also forex, shares and commodities.
- An important feature in fast moving, volatile markets, such as the stock market indices, is that you can trade quickly. You are not actually buying or selling any rights or assets. You are purely speculating on the future value of a market.
- Spread bets can be closed early. This can work in two ways. You can close a profitable position in order to guarantee a profit. Conversely you can also close a losing position in order to stop any further losses.
Spread betting carries a high level of risk. You can lose more than your initial investment or stake. Spread betting may not be suitable for all investors. Only trade with money that you can afford to lose. Make sure you fully understand the risk involved. If necessary, seek independent financial advice.