Index Spread Trading
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Where Can I Open an Index Spread Trading Account?
There are a good number of spreads firms that offer thousands of international markets including the leading indices like the FTSE 100, Dow and DAX as well as forex, commodities and individual shares.
Some companies, like FinancialSpreads.com, provide the usual benefits of tax free* trading with zero commissions and trading on markets to go up or down two way. They also offer trading on a number of the key indices 24 hours a day, 5 days a week. For more information see 24 hour spread trading.
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| FTSE 100 Daily - Spread Size |
1 |
1 |
1 |
1 |
1 |
1 |
1 |
1 |
| FTSE 100 Daily - Min Stake |
£1 |
£0.50 |
£2 |
£1 |
£1 |
£1 |
£1 |
£1 |
| FTSE 100 Future - Spread Size |
4 |
4-8 |
6 |
4 |
4 |
3 |
4 |
4 |
| FTSE 100 Future - Min Stake |
£1 |
£0.50 |
£2 |
£1 |
£1 |
£1 |
£1 |
£1 |
| Wall St Daily - Spread Size |
2 |
1 |
2 |
2 |
2 |
2-4 |
2 |
2 |
| Wall St Daily - Min Stake |
£1 |
£0.50 |
£1 |
£1 |
£1 |
£1 |
£1 |
£1 |
| DAX 30 Daily - Spread Size |
1 |
1 |
1 |
1 |
2 |
1 |
1 |
1 |
| DAX 30 Daily - Min Stake |
£1 |
£0.50 |
£2 |
£1 |
£1 |
£1 |
£1 |
£1 |
| S&P 500 Daily - Spread Size |
4 |
4 |
5 |
4 |
3 |
5 |
4 |
4 |
| S&P 500 Daily - Min Stake |
£1 |
£0.50 |
£1 |
£1 |
£1 |
£1 |
£1 |
£1 |
| Nasdaq 100 Future - Spread Size |
3 |
4-10 |
4 |
3 |
3 |
4 |
3 |
3 |
| Nasdaq 100 Future - Min Stake |
£1 |
£0.50 |
£4 |
£1 |
£1 |
£1 |
£1 |
£1 |
Comparison Notes
Advantages of Index Spread Trading
Index spread trading has several important advantages over more traditional investment options:
- Spread trading is tax free*, that is to say, you don’t pay capital gains tax, income tax or stamp duty on your trades.
- With spread trading, you deal directly with a spread trading firm. This means that trades are typically commission free and there are no broker’s fees. This can help to keep your trading costs down. Although beware that if you are trading ‘rolling daily markets’ and you decide to keep your position open overnight then there is often a small charge (see below).
- A spread trading account offers a lot of freedom and choice. You can typically speculate on huge range of financial markets, not just indices. There are commodities, like gold, crude oil and coffee as well as currencies, shares, interest rates and even bonds.
- With spread trading, you are simply speculating on the future price of a given market. This means that you can speculate on a stock market index to go down as well as up. This is in contrast with traditional investment formats which often only allow investors to profit on rising markets.
Index Spread Trading Example
Capital Spreads are currently showing the FTSE 100 rolling daily market at 6015.8 - 6016.8. Therefore, an investor can speculate on the FTSE 100 index:
- Moving higher than 6016.8, or
- Moving lower than 6015.8
When financial spread trading on the FTSE 100 index, you trade in £x per point. So, if you chose to invest £4 per point and the FTSE 100 moves 5.0 points then there would be a difference to your bottom line of £20. £4 per point x 5.0 points = £20.
Index Rolling Daily Markets
Note that this is a Rolling Daily Market (not a futures market) and therefore there’s no closing date. If you don’t close your trade by the end of the day, it will roll over to the next trading session. If you allow your position to roll over and are speculating on the market to:
- Rise - then you are often charged a small overnight financing fee, or
- Fall - then a small payment is often credited to your account
For more details see Rolling Daily Spread Trading.
Index Spread Trading - FTSE 100 Example
Taking the spread of 6015.8 - 6016.8 and assuming that:
- You have analysed the FTSE 100, and
- Your analysis leads you to believe that the FTSE 100 index will increase and go higher than 6016.8
Then you might choose to go long of the market at 6016.8 and risk, for example, £2 per point.
Therefore, you win £2 for every point that the FTSE 100 index moves above 6016.8. However, such a trade also means that you will lose £2 for every point that the FTSE 100 market moves lower than 6016.8.
Looking at this from another angle, should you ‘buy’ a market then your profits (or losses) are worked out by taking the difference between the final price of the market and the price you bought the spread at. You then multiply that price difference by the stake.
If after a few trading sessions the index rose then you might consider closing your position to secure your profit. As an example, if the market increased then the spread, determined by the spread trading company, could be adjusted to 6083.0 - 6084.0. In order to close your position you would sell at 6083.0. Accordingly, with the same £2 stake your profit would come to:
P&L = (Final Price - Opening Price) x stake
P&L = (6083.0 - 6016.8) x £2 per point stake
P&L = 66.2 x £2 per point stake
P&L = £132.40 profit
Trading indices, whether by spread trading or otherwise, doesn't always go to plan. With the above, you wanted the index to rise. However, the index could fall.
If the FTSE 100 market had started to fall then you might choose to close your spread trade to stop any further losses.
Should the market pull back to 5956.6 - 5957.6 you would sell back your position at 5956.6. That would mean you would make a loss of:
P&L = (Final Price - Opening Price) x stake
P&L = (5956.6 - 6016.8) x £2 per point stake
P&L = -60.2 x £2 per point stake
P&L = -£120.40 loss
Note - FTSE 100 Rolling Daily market accurate as of 21-Feb-11.
Where Can I Find Index Spread Trading Charts?
Most spread trading companies offer charts as well as a wide range of historical data and analysis. For example, the indices spreads charts offered by most of the companies on this website let you add a range of Moving Averages and other statistics like Bollinger Bands.
Depending upon your personal investment strategy and how you want to trade the markets, you can easily alter the charts to show the data in a variety of different time scales from week-by-week and day-by-day down to minute-by-minute changes.
Index Spread Trading Companies – Account Services Comparison
The firms detailed below all offer clients a range of indices markets as well as all the normal benefits of spread trading mentioned above, ie tax free*, commission free trading, numerous markets and two-way trading.
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| Online Application |
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| Credit Account |
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| Deposit Account |
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| Stop Loss Available |
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| Automatic Stop Loss |
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| 24 Hour Trading |
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| FSA Authorised and Regulated |
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| Candlestick Charts |
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Comparison Notes
Index Spread Trading and Risk Management
Whether you trade more traditional stocks and shares or trade via newer products, such as ETFs or CFDs, there are always risks when you invest. With spread trading you need to be careful because you can lose more than your initial investment.
Therefore before you trade, ensure that spread trading matches your investment objectives. Make sure you familiarise yourself with the risks involved. Trades carry a high level of risk to your capital. Seek independent advice where necessary.
Having said this, you can put limits on your positions to reduce your losses but not your profits. You can also employ smaller stake sizes such as £1 per point or $1 per point.
If you only want to gain a little exposure then you could trade European, UK or US stock market indices, ie speculate on whether the FTSE, DAX, S&P 500 etc will go up or down.
You can normally trade any of these markets with stakes of just £1 per point or $1 per point etc. If you speculate on the FTSE to go up, with a £1 per point stake, and it goes up by 140 points then you would make 140 points x £1 per point = £140.
Conversely, if the market went against you, dropping by say 95 points, then with a £1 stake you would lose 95 points x £1 per point = £95.
Of course this would not be a great way to start. However, with a number of companies like Financial Spreads you can add a Guaranteed Stop Loss at let's say, 60 points.
If you were trading the FTSE 100 then your position would be closed if the FTSE 100 moved against you by 40 points. Therefore, instead of losing £95, you'd only lose 60 points x £1 per point = £60.
However, assuming you correctly predicted the direction of the market, your profit would still be £120 if it moved 120 points or £70 if the FTSE 100 moved by 70 points.
Using small stakes and guaranteed stop losses are simple risk management techniques that too many investors overlook.
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Financial Spreads
"With FinancialSpreads.com you get all the normal
advantages of Spread Trading plus commission free trading on 2,000+ markets, 24 hour trading and..." read
Financial Spreads review.
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Risk Warning: Spread trading carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
'Index Spread Trading' by DB, updated 17-May-12
For related pages also see:
Index Spread Trading, updated 17-May-12
Index Spread Trading - Where to open an Indices Spread Trading account, where to find Index spread trading charts, Indices risk management tips, stock market index spread trading examples and...read article: Index Spread Trading.
Commodities Spread Trading, updated 17-May-12
Commodities Spread Trading - Where to open a Commodities Spread Trading account, where to find Commodity spread trading charts, Commodities risk management tips, Commodities examples and...read article: Commodities Spread Trading.
Financial Spread Trading, updated 17-May-12
Financial Spread Trading - A look at where you can open a financial spread trading account, where to get live financial spread trading charts, risk management tips, spread trading examples and...read article: Financial Spread Trading.
Forex Spread Trading, updated 17-May-12
Forex Spread Trading - A look at where you can open a forex spread trading account, where to get live forex charts, forex risk management tips, trading examples and...read article: Forex Spread Trading.
Commodities Futures, updated 30-Apr-12
Commodities futures. Where to find Commodities real-time prices and charts, how to trade the Commodities markets and the most popular Commodities futures questions plus...read article: Commodities Futures.
FTSE Futures, updated 30-Apr-12
FTSE futures. Where to find FTSE real-time prices and charts, how to trade the FTSE index and the most popular stock market futures questions on FTSE plus...read article: FTSE Futures.
Dow Futures, updated 30-Apr-12
Dow futures. Where to find Dow real-time prices and charts, how to trade the Dow index and the most popular stock market futures questions on Dow plus...read article: Dow Futures.
S&P 500 Futures, updated 30-Apr-12
S&P 500 futures. Where to find S&P 500 real-time prices and charts, how to trade the S&P 500 index and the most popular stock market futures questions on S&P 500 plus...read article: S&P 500 Futures.
DAX Futures, updated 30-Apr-12
DAX futures. Where to find DAX real-time prices and charts, how to trade the DAX index and the most popular stock market futures questions on DAX plus...read article: DAX Futures.
Gold Futures, updated 30-Apr-12
Gold futures. Where to find Gold real-time prices and charts, how to trade the Gold market and the most popular commodities futures questions on Gold plus...read article: Gold Futures.
Crude Oil Futures, updated 30-Apr-12
Crude Oil futures. Where to find Crude Oil real-time prices and charts, how to trade the Crude Oil market and the most popular commodities futures questions on Crude Oil plus...read article: Crude Oil Futures.
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