FTSE / Dow Jones Differential

FTSE / Dow Jones Differential

Guide to FTSE / Dow Jones differential spread betting.

Where Can I Trade on Differential Spread Betting Markets?
What are Differential Spread Betting Markets?
Where Can I Get Charts for Differential Markets?
How to Spread Bet on the FTSE 100 - Dow Jones Differential

Where Can I Spread Bet on Differential Markets?

You can currently spread bet on differential spread betting markets with:

What are Differential Spread Betting Markets?

A differential spread betting market is just the difference between two spread betting markets.

A few of the more popular markets are:

As a brief example, if the Dow Jones is currently trading at 11887 and the FTSE 100 is trading at 5735 then the difference between the indices is 6152. This might mean that a spread trading company like InterTrader could offer a FTSE 100 - Dow Jones differential market of 6150.0 - 6154.0.

Therefore, InterTrader’s spread betting clients can spread bet on the differential moving above 6154.0 or moving below 6150.0.

From another angle, it’s a way of speculating on the relative performance of the FTSE 100 index against the Dow Jones.

If you thought that the Dow Jones was going to perform better than the FTSE 100 you could decide to spread bet on the differential market to rise. On the other hand, if you decided that the FTSE 100 was going to perform better then you can spread bet on the differential to fall.

Trading on a differential spread betting market has the same effect as spread betting on one market to go up and the other market to go down, although with a differential:

There is only a single trade and that makes your total position easier to calculate
The total spread of two individual trades is wider. One differential trade offers spread betting clients a way of trading with tighter spreads.

Please note that these are futures markets with either a monthly or a quarterly settlement date. The example above is a ‘June’ futures market so if you hadn’t closed your trade then any open positions would be closed on the appropriate settlement date in June. For a more detailed explanation please see the example below.

Where Can I Get Charts for Differential Markets?

Investors can get candlestick charts on a range of financial markets, including differential markets, with spread betting providers like Financial Spreads.

Financial Spreads’ charts allow you to vary the timescale of the data to view it over minutes, hours, days or even weeks. They have also provided a range of other options and settings to assist your technical analysis.

UK 100 - Wall Street Differential Spread Betting Chart

How to Spread Bet on the FTSE 100 / Dow Jones Differential

As with a wide variety of global markets, you can place a spread bet on differentials, like the "FTSE 100 - Dow Jones differential", to rise or fall.

At the time of writing the FTSE 100 index is priced at 5735 whilst the Dow Jones index is at 11887.

Looking at the Capital Spreads website, they are currently valuing the FTSE 100 - Dow Jones (June) Differential market at 6150.0 - 6154.0. Therefore, you can spread bet on the FTSE 100 - Dow Jones differential:

Settling higher than 6154.0, i.e. the Dow Jones will perform more strongly, or
Settling lower than 6150.0, i.e. the FTSE 100 will perform more strongly

On the closing date for this 'June' market, 17-Jun-11.

Whilst financial spread betting on the FTSE 100 - Dow Jones differential you trade in £x per point. Therefore, if you chose to risk £6 per point and the FTSE 100 - Dow Jones market moves 5.0 points then that would be a difference to your profit/loss of £30. £6 per point x 5.0 points = £30.

FTSE 100 - Dow Jones Differential Spread Betting Example

Now, if you think about the spread of 6150.0 - 6154.0 and assume that:

You have done your market analysis, and
You think that the Dow Jones will perform more strongly and so the FTSE 100 - Dow Jones differential will settle above 6154.0 by 17-Jun-11

Then you could choose to buy a spread bet at 6154.0 and risk, let’s say, £3 per point.

With such a trade you make a return of £3 for every point that the FTSE 100 - Dow Jones differential rises higher than 6154.0. Conversely, however, it also means that you will make a loss of £3 for every point that the FTSE 100 - Dow Jones market moves lower than 6154.0.

Considering this from another angle, if you were to ‘Buy’ a spread bet then your profits (or losses) are found by taking the difference between the closing price of the market and the initial price you bought the spread at. You then multiply that difference in price by the stake.

So if, on the closing date the FTSE 100 - Dow Jones differential settled higher at 6200.2, then you would make a profit:

P&L = (Closing Value - Opening Value) x stake
P&L = (6200.2 - 6154.0) x £3 per point stake
P&L = 46.2 x £3 per point stake
P&L = £138.60 profit

Speculating on differentials, whether by financial spread betting or otherwise, is not simple. In the above example, you had bet that the differential would increase. However, the market can also decrease.

If the FTSE 100 index had performed better than the Dow Jones and the FTSE 100 - Dow Jones market decreased, closing lower at 6112.5, then you would end up making a loss.

P&L = (Closing Value - Opening Value) x stake
P&L = (6112.5 - 6154.0) x £3 per point stake
P&L = -41.5 x £3 per point stake
P&L = -£124.50 loss

Note: FTSE 100 - Dow Jones June Differential spread betting market taken as of 21-Mar-11.

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