SPREAD BETTINGON INDICES
Spread Betting Opportunities for Traders
New traders and seasoned professionals alike find plenty of value in spread betting on indices. Indices are the most popular choice for traders at spread betting companies, with an overwhelming number of 50% plus trading volume recorded through major indices like the DAX, the CAC, the Dow Jones, the FTSE 100, the Ibex 35 and so Forth. Spread bettors have multiple options available to them in the form of commodities, currencies, stocks and indices.
There are many advantages to trading indices in a spread betting format, including the fact that they can never be taken over by other entities and they will never go bust. There are other advantages to spread betting in this arena, notably that you require much smaller betting stakes than traditional futures trading. Another major benefit of spread betting on indices is that it is all undertaken in GBP, so no currency conversions are needed.
What Exactly Are Indices?
All countries with stock markets have indices. In South Africa there is the Johannesburg Stock Exchange (JSE) which lists several indices, in London there is the FTSE 100 index, the FTSE 250 index etcetera, in France there is the CAC, and in Germany there is the DAX. Further afield in Asia there is the CSI 300 index in China, the Shenzhen composite index and the Shanghai Composite index, in Japan the Nikkei 225 index rules the roost, and on Wall Street there are several indices including the Dow Jones 30, the S&P 500 index, the NASDAQ composite index and others. In all likelihood you are well familiar with the concept of an index in your country, and the world.
Indices Group Stocks by Sector or Industry
Indices house stocks of listed companies. It can be considered a basket of stocks, but further clarification is needed. It is true that indices (plural for index) group together large numbers of stocks. For example, the FTSE 100 index features 100 of the biggest companies listed on the London Stock Exchange (LSE). The FTSE 250 index lists companies on the FTSE 350 index but not companies listed on the FTSE 100 index. They are large, but not big enough to make it into the top 100 (the FTSE 100 index). Then there is the FTSE 350 index which contains 350 of the biggest companies on the London Stock Exchange (LSE).
Across the Atlantic, the NASDAQ 100 index is a grouping of 100 of the largest companies featured on the NASDAQ stock exchange. While the NASDAQ is not exclusively for technology stocks, it is the index that is associated with the top performing technology stocks. The Dow Jones Industrial Average (DJIA) features the largest 30 companies in the United States of America. However, it should be borne in mind that this is a misnomer of sorts since the Dow Jones include companies that are not entirely industrial in nature such as Microsoft (DJIA: MSFT). In Asia, the Japanese Nikkei 225 index includes a listing of 225 companies on the TSE (Tokyo Stock Exchange).
Spread Betting on Indices
When you make a decision to spread bet on indices, it is important to understand that indices are made up of individual stocks. The biggest stocks in an index are the ones that have the highest weighting in that index. In other words, any price movement in highly weighted stocks in an index will impact on the index. This means that the selfsame factors that impact on individual stocks will likely impact on the index too. But since indices are specific in nature (a specific sector or industry) one has to consider the factors that impact upon that industry or sector respectively. If we assume that the financial sector is booming while the technology sector is crumbling, it is safe to assume that indices in the financial sector will prosper while those in the technology sector will fail.
However, stock markets have a mind of their own and not everything follows a logical progression. The actions of speculators, the impact of geopolitical shocks and global instability (weather phenomena, terrorist attacks, election results etcetera) will always have an impact on indices. As a spread bettor of indices, it is imperative to closely follow the news in the industry or sector that you are focused on. There are no commissions on trading index spread bets. Betting providers simply tack on a little extra for the market spread. Indices typically trade in a tight range, although the recent political upheaval and economic uncertainty generated by the historic Brexit referendum saw indices swinging wildly, particularly the FTSE 100 index, the Ibex 35 and the Euro Stoxx 50 PR. In the week post-Brexit movements in the region of 3% – 12% were not uncommon. Typically, such volatility is the exception to the rule.
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