Trade the FTSE 100 Online | FXTRADING.com - International

Trade the FTSE 100 Online

Trade the FTSE 100 with a regulated broker

Test your stock market index trading with our FTSE 100 CFD (UK100). Enjoy the benefits of our raw price spreads, zero commission, deep liquidity pools and STP (straight through processing) in an unrestricted trading environment built for scalpers, automated / EA traders and HFT’s (high frequency traders).

A Primer on the FTSE 100

  • Launched over 25 years ago
  • Uses a free-float market capitalisation weighting
  • It contains the 100 largest UK companies
  • Around 70% of FTSE 100 revenue is from overseas
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Launched over 25 years ago
With a starting base of 1,000, the FTSE was officially launched on January 3rd 1984. It trades on one of the oldest stock exchanges in the world, the LSE (London Stock Exchange) which was founded in 1571.

Uses a free-float market capitalisation weighting
Market capitalisation is the popular method to weight modern indices. In simple terms, stocks with a higher market-cap have a greater weighting within the index, and therefore their price movements have a larger impact on the index.

This also means it makes sense for FTSE 100 traders to keep an eye on some of the large-cap stocks within the index as it may provide clues to how the index will perform.

It contains the 100 largest UK companies
Whilst around 2/3rd of the companies listed have international exposure, the FTSE 100 is largely seen as an index whose constituents are bound by UK law.

As of July 2020, the top 10 by market-cap for the FTSE 100 are:

  • AstraZeneca
  • BHP Group
  • GlaxoSmithKline
  • HSBC Holdings
  • Diageo
  • British American Tobacco
  • BP
  • Rio Tinto
  • Reckitt Benckiser Group
  • Unilever


Around 70% of FTSE 100 Revenue is From Overseas
With so many companies reporting overseas, international exposure is high, and with that comes currency risk (more on that later). However, the FTSE 100 may not be the best representation of the UK economy. For that investors track the FTSE 250 which contains the 101st to 350th largest company listed on the LSE.

How Can You Trade the FTSE 100 Index?

As the FTSE 100 is not a tradable instrument, speculators must use derivates to trade it. Traditionally this involved using derivates such as futures contracts but the addition of CFDs (contracts for difference) into the derivate family has made index trading more accessible to all.

Our UK100 CFD provides access to live market pricing derived from the FTSE 100 index, without the trader becoming the owner of the underlying market or entering into a contract to own it in future.

CFDs allow traders to speculate on rising and falling markets via long (bullish) and short (bearish) positions. Moreover, margin requirements (collateral required to open a position) are very low, which makes index trading more easily accessible. With leverage of up to 100:1, traders can initiate a bet on the FTSE’s direction at just 100th of the price of the market pricing.

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Long example: FTSE 100 (UK100)
A trader buys 5 contracts of the UK100 CFD at 4,750

  • If the price rises to 6,000 the trader could exit for a profit around £6,250
    • (# contracts x contract size) x (exit price – entry)
    • (5 x 1) x (6,000 – 4,750)
  • If the price falls to 4,000 the trader could exit for a loss around – £3,750
    • (# contracts x contract size) x (exit price – entry)
    • (5 x 1) x (4,000 – 4,750)
  • A 1% margin requirement with 100:1 leverage requires £237.50 of capital
    • (# contracts x contract size x price) / leverage
    • (5 x 1 x 4,750) / 100

 

Short example: FTSE 100 (UK100 CFD)
A trader sells 10 contracts of the UK100 CFD at 3,500

  • If the index falls to 3,000 the trader could exit for a profit around £5,000
    • (# contracts x contract size) x (entry – exit price)
    • (10 x 1) x (3,500 – 3,000)
  • If the index rises to 3,750 the trader could exit for a loss of around – £2,500
    • (# contracts x contract size) x (entry – exit price)
    • (10 x 1) x (3,500 – 3,750)
  • A 1% margin requirement with 100:1 leverage requires £350 of capital
    • (# contracts x contract size x price) / leverage
    • (10 x 1 x 3,500) / 100

 

Costs associated With CFDs

Spread:
At the point of trade entry, a minimal trade transaction is applied to the trade. This transaction charge is based upon the spread which is simply the difference between the bid and ask prices (bid – ask). The thinner the spread, the lower the cost to open a trade. The spread of the market can be viewed within MT4’s “Market Watch” window, deal ticket and on the chart itself.

The spread is a variable rate and its width is determined by the amount of trading activity. We would typically expect a thinner (lower cost) spread during times of high trading activity, such as when the underlying exchange is open.

It is not uncommon to see the spread widen leading up to an important economic event as liquidity (trading activity) dries up. And the spread can widen as news flows are released, before reverting to a lower spread as liquidity returns. However, throughout the official hours of the London Stock Exchange we would generally expect the UK100 CFD spread to be lower.

In this example, the spread is 1 index point (equivalent to £1).

UK100
Bid / Ask:
6,6500.22 / 6,6501.22

In the next example, the spread is 2.5 index points (equivalent to £2.50).

UK100
Bid / Ask:
4,2500.00 / 4,2502.50

Swaps:
If positions are held overnight (at midnight server time) then swaps are applied to the floating profit or loss of that position. Swaps can either be a credit or a debit to the position, depending on whether it is a long or short position and what the underling interbank rate is for the country the exchange is based upon.

Swaps for the UK100 CFD are calculated in British pounds (£) as it trades on the London Stock Exchange in the UK, and their interbank rate is set by the BOE (Bank of England).

 

Market Drivers for the FTSE 100

  • The Bank of England (BOE)
  • The British Pound (GBP)
  • Global Equities
  • Economic data
  • Risk-appetite
  • Earnings Season
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The Bank of England (BOE)
As a Central Bank (CB), the BOE can make a large impact on markets including stocks, bonds and commodities. For this reason, traders pay close attention to BOE meetings, forecasts, speeches and data releases.

If the BOE becomes dovish ( r traders suspect they will be in future) it tends to bode well for stock prices and support the FTSE 100. Yet if they become hawkish, it can have a negative impact on stock prices.

However, the relationship does not behave like the flick of a switch. The degree of a market’s reaction will depend on how much BOE surprise markets, relative to current policy and expectations. For example, we would expect a more volatile move from the FTSE 100 if BOE were to announce an unexpected round of rate cuts (or hikes) when traders were not expecting it.

  • Dovish actions could include lowering interest rates, increasing QE (quantitative easing), increasing the money supply (M2) or merely suggesting such action could take place.
  • Hawkish action could include raising interest rates, tapering QE (lowering balance sheet), decreasing the money supply or suggesting via meetings or pubic speeches they intend to do any of these.

The British pound (GBP)
The FTSE typically shares an inverted correlation with GBP, although the strength of this correlation changes over time. There are also occasions when the relationship breaks down. Yet because the majority of FTSE 100 companies report earnings overseas, a weaker GBP inadvertently boosts revenue for those companies and can boost the company’s share price. Whereas a stronger currency can weaken share prices via lower revenue when they convert their money back to GBP.

Global Equities
Over the longer-term, global indices tend to move in the same direction, although among them some will post stronger returns or losses than others. Assuming a domestic driver is not overpowering this strong correlation on a given day, often you will see indices such as the FTSE 100 perform in line with the prior session (ie Asia) at the start of the session. This means index traders tend to keep a close eye on indices across the US, European and Asian sessions as they can create a broader sentiment for sentiment.

Economic Data
Investors use macro-economic data to try and predict if future growth (measured in GDP) will expand or contract. An expansive economy is generally supportive of stock markets and a contracting economy can weigh on shares, particularly if they enter a bear market.

Whilst there are many indicators available to follow, popular data sets for FTSE traders include business surveys, consumer surveys, employment figures, credit, spending and employment.

Risk-Appetite
Equities are considered to be ‘risk assets’ which make indices such as the FTSE 100 sensitive to risk appetite. If investors feel confident about the future, they tend to buy risker assets and stocks can benefit. Conversely, investors can shy away from risk as they are fearful of the future, they can close long positions or even initiate short positions on risk assts such as equities and indices.

Earnings Season
Companies release earnings reports each quarter to the public and, if they beat or miss analyst estimates, the company’s share price can rise or fall accordingly. Whilst an individual report generally won’t make a large movement on the FTSE 100, earnings season can make a notable impact as investors receive clusters of reports over a period of days and weeks. Traders can see upcoming dates for earnings reports on freely available calendars online or company websites.

Seasonality and the FTSE 100

Like commodity markets, stock market indices can also display seasonal patterns throughout the year. They can provide useful information alongside other forms of analysis although, as they are simply an average of historical price performance, they should not be considered as a roadmap for future market prices.

Other market drivers can prevent a seasonal pattern form playing out, so they should always be used in line with additional forms of analysis. That said, below are two of the most popular patterns associated with indices, along with statistics of interest from the past 30 years.

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Santa’s Rally
Historically, equity markets have shown the tendency to rally in December as they approach the Christmas break. It doesn’t always happen but the tendency is strong enough to warrant attention. Over the past 30 years, December has averaged 1.9% on the FTSE 100 which shows the seasonal pattern does deserve merit. However, keep in mind that this is an average of past performance and is not in itself a predictive measure.

“Sell in May and Go Away”
This famous saying from Wall Street comes from the tendency for equity market returns to be sanguine from May through the summer months in the US. That does not necessarily make it a good short selling opportunity for some markets though. Over the past 30 years the FTSE has averaged a 0.12% return in April, yet June’s returns have averaged -1.2% (its most bearish month of the year).

Monthly-Close Statistics for the FTSE:
Between January 1990 and December 2019 (30 years)

  • 8 out of 12 months (66.7%) posted positive returns (bullish closes)
  • December, April and October produced the most bullish months at 1.9%, 1.8% and 1.4% respectively
  • December, October and April had the highest ‘win rates’ (monthly closes) of 80%, 73.3% and 70% respectively
  • 4 out of 12 months (33.3%) posted negative returns (bearish closes)
  • June and September averaged the most bearish returns of -1.2% and -0.9%
  • June closed lower for the month 70% of the time

Why Trade the FTSE 100?

  • Trade long and short
  • Hedge a Basket of Stock, an ETF or the Index
  • Low margin requirements
  • Popular with Traders of All Styles and Time Horizons
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Trade Long and Short
The ability to trade both long and short means traders can freely speculate on bullish and bearish markets, regardless of timeframe. This is not always possible on futures markets which can prevent the initiation of new trades or the exit of current positions if the futures market hit ‘limit-up’ or ‘limit-down’.

Hedge a Basket of Stock, an ETF or the Index
The process of hedging involves opening a second position in the opposite direction to the former position, in order to mitigate risk. Just some examples include hedging on a Friday to mitigate the risk of gaps over the weekend, or ahead of a potentially volatile event such as an election.

For example, an investor could be long a portfolio of FTSE 100 stocks, so they decide to short (sell) the equivalent GBP value of the FTSE 100 CFD (UK100). In doing so, if their portfolio falls in value the FTSE may also fall and help offset at least some of the losses. If the stock portfolio rises the investor can easily close the hedge (short UK100 position).

If the trader decides to fully hedge an existing UK100 trade of equal value, the margin requirements reset to zero which allows the trader to seek opportunities elsewhere until they decide to close the UK100 positions.

Low Margin Requirements
Index trading is now easily accessible to traders of all levels thanks to generous levels of up to 100:1 which keep margin requirements (collateral) very low. With 100:1 leverage, the margin required to open the trade is just 100th the price of the market price traded.

Popular with Traders of All Styles and Time Horizons
CFDs are a versatile instrument for traders of all styles. They allow traders to focus on speculation and worry less about contract expiration like that of a futures trader or share ownership of an equity trader.

Whether your style is fundamental, technical or even automated, CFDs can provide tradable opportunities across multiple timeframes whether it be minutes, days, weeks or months.

Why Trade the FTSE 100 with FXTRADING.com?

  • Competitive Spreads
  • Multiple Deposit Options
  • Trade the FTSE out of exchange hours
  • ASIC Regulated
  • Fast-execution trading environment
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Competitive Spreads
Trading costs matter, which is why FXTRADING.com offer some of the tightest spreads in the industry, sourced from top-tier liquidity providers.    

Multiple Deposit Options
FXTRADING.com may be an Australian brokerage, yet we have a global reach which requires multiple currencies and deposit options to be available for our clients. Accounts can be funded in GBP, AUD, USD or EUR via popular payment methods such as Neteller, Skrill, Poli and bank transfer/wire.

Trade the FTSE 100 Out of Exchange Hours
The official opening hours of the FTSE 100 are between 08:00 and 16:30 UK time. Yet with out of hours trading, FXTRADING.com allow traders to participate on FTSE fluctuations for up to 20 hours a day, 5 days a week.

ASIC Regulated
FXTRADING.com are a trusted broker, regulated by the internationally recognised regulator, the Australian Securities and Investments Commission (ASIC).

Fast-Execution Trading Environment
Scalpers, high-frequency traders (HFT’s) and automated traders are welcome to try our MT4 platform and trading infrastructure which has speed at mind.

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