The FTSE 100 is just one of many indices you can use for spread betting. We explain how FTSE spread bets works and identify the top UK spread betting brokers for UK traders
FTSE 100 spread betting means taking a position on the indices that the prices will. A trader will ‘buy’ a spread bet if they predict the FTSE 100 indices will rise or if they think it will ‘fall’ they will sell the position. The key advantage of spread betting is the trader doesn’t need to own the index, and can easily enter and exit trades and can make a profit predicting the indices will rise or fall.
The FTSE (or the “footsie”) is one of the largest stock indices in the world. It is a basket that measures the performance of the top 100 companies on the London Stock Exchange (LSE) with the highest market capitalisation.
1. FTSE Spread Bet Principles
Spread betting is a financial derivative that allows you to bet on the market direction of an underlying asset. Because it is a derivative, you do not own the underlying asset, so you can bet on the market rising or falling, allowing you to trade in any market condition. Spread betting markets cover a range of assets like stocks, forex, commodities, indices, ETFs, and bonds. As the FTSE is London-based and most spread bettors are UK residences it’s no surprise the FTSE 100 is one of the most traded.
2. How To Spread Bet On The FTSE 100
FTSE 100 spread betting involves nine steps:
- Choose a spread betting broker
- Open a spread bet account
- Fund the account
- Analyse FTSE 100 charts and prices
- Place a bet either buying or selling
- Pick a position size
- Place a stop-loss
- Monitor the trade and markets
- Close the trade
Remember, individuals who spread bet are not buying the financial instrument (in this case the FTSE index) but speculating if it will go up or down. If you think the value of the FTSE index will rise in value, you will “buy” the index. If, on the other hand, you believe it will fall, you will “sell” the index. Your profit or loss is determined by the difference between the price at which you buy the index and the price at which you sell it, multiplied by the bet amount.
3. FTSE Spread Betting Examples
Below are two scenarios of a spread bet with different outcomes.
Example 1: A Winning Trade
In this example, we will look at a long position on the FTSE 100.
You read that the Bank of England intends to cut interest rates and predicts that the FTSE 100 index will rise.
You place a bet that the FTSE will rise at least within the next 24 hours and open a position at 7950 for £5.00 stake per point.
Fortunately, 5 hours later, the market moved in your favour, and the FTSE 100 index rose to 7970. You decide to take the profit and close the position after the 20-point move (7970-7950), making you £100 profit (20*£5 per point staked).
Example 2: A Losing Trade
In this example, we will look at a short position on the FTSE 100.
You believe that the FTSE 100 will fall due to a hike in interest rates, so place a short position of £5 per point at 7600.
Unfortunately, over the next 14 hours the FTSE 100 increased to 7650. You decide to cut your losses after the FTSE moved 50 points (7650-7600) against you and exit at 7650. This leaves you with a loss of £250 (50 points * £5 stake per point).
Why Spread Bet On The FTSE 100?
Indices, in general, are an excellent asset to trade for short-term and longer-term bets. Below I’ve listed what I think are the top reasons to spread bet on the FTSE 100.
- Market data and news flow occur during UK trading hours, making the FTSE 100 responsive to short-term moves that allow you to use spread bets to profit from.
- Compared with other indices like DAX40, it’s not as volatile.
- Spread bettors that bet on shares may hedge with the FTSE 100.
Popularity Of FTSE 100 Spread Betting
The FTSE 100 is a popular spread betting market because it is the London Stock Exchange (LSE) benchmark index. It comprises the 100 most traded companies by capitalisation.
Even if you are new to trading and live in the UK, you will have heard about the FTSE 100 and may even know some companies that make up the index. Companies that form part of the index include Unilever (LSE: ULVR), AstraZeneca (LSE: AXN), HSBC (LSE: HSBA) and Rio Tinto (LSE: RIO).
It is also a popular choice because you can place spread bets on the index 24 hours a day, allowing for plenty of trading opportunities.
FTSE 100 vs FTSE 250
The FTSE 100 is the benchmark index of the UK economy, which tracks the top 100 companies listed on the London Stock Exchange. While the FTSE 250 tracks the next largest 250 companies. However, there are some key differences you should know:
- The FTSE 100 is more likely to be affected by global and geo-political news because most investors and institutions hold stocks within the FTSE 100. Therefore, it is more sensitive to market news.
- The FTSE 250 is a higher-risk index due to the companies having smaller market caps than those in the FTSE 100.
- The FTSE 100 has a greater representation of companies that generate business from outside the UK, like mining or gas and oil companies, making it also susceptible to commodity prices.
- The FTSE 250 closely reflects the UK economy, with most of the companies focusing on UK sectors and businesses.
FTSE 100 Spread Betting vs CFDs
FTSE 100 spread betting and contracts for difference (CFDs) are derivatives, meaning they derive their value from an underlying market. With spread betting and trading CFDs, you don’t purchase the underlying asset but place bets on the market direction.
Other similarities include:
- Both involve trading with leverage
- You can profit from price movements in either direction (going long or short)
- Can speculate on the same financial instruments (though spread betting can also be applied to sports).
While CFDs and spread betting overlap, there are notable differences.
Other differences between spread betting and CFD trading.
- CFDs can be traded directly in the market (i.e. using direct market access). Spread bets can only be done over the counter via a broker.
- Spread betting is tax-free, while CFDs are not. You won’t pay capital gains tax on profits or stamp duty on purchases from spread betting. Profits from CFD trading are subject to capital gains tax, although any losses can be offset against future profits for tax purposes.
- Spread betting has a spread-only cost with no commissions, while CFDs can have either spread-only or tight spreads with a commission cost.
- Spread betting stakes are in GBP, meaning there are no currency conversion fees, while CFDs are charged a conversion fee when you trade international assets like US shares.
FTSE Spread Betting vs Forex Trading
The main difference between forex trading vs spread betting is that with spread betting, you bet on the price movement of the forex pair, therefore allowing you to bet in GBP.
Meanwhile, with forex CFDs, you will enter a contract and pay in EUR or USD, depending on whether you are long or short. This means that with forex CFDs, you are subject to currency risk and conversion fees from the broker.
Forex trading also differs from spread betting in terms of taxation. Forex CFD profits are subject to capital gains tax, while spread betting profits are exempt.
Who is the best FTSE spread betting broker?
Pepperstone is our top-rated FTSE spread betting broker with its range of spread betting platforms, fast execution and low spreads – it’s an overall solid choice for any trader. Alternatively, IG is a solid choice if you want access to a wider range of FTSE markets, such as futures and weekend trading.
Calculating A FTSE 100 Spread Bet
Spread betting indices have additional calculations that impact the index’s prices. Below, I have listed some of the additional calculations you should be aware of:
1. Dividend Adjustments
Some adjustments are made to accommodate companies paying dividends that affect the FTSE 100 price. When companies pay a dividend, it causes the value of the FTSE 100 to fall, but don’t worry, as it won’t impact your open PnL. The broker adjusts your account and either credits you (if you are long the FTSE) or debits you (if you are short the FTSE) to reflect the dividend adjustment.
For example, if you have a long position open at £10 per point during the dividend adjustment period (16:30 UK time), you will be credited £10 per point for the adjustment taken off the index. If it took 11 points off, your account will be credited £110 to offset the dividend adjustments.
It is important to note that you do not lose out on your PnL overall in either example.
2. Rolling Day Prices
The rolling day price of the FTSE 100 is calculated based on the FTSE futures price, and this is how a spread bettor can bet on the FTSE 24 hours a day.
3. Longer Term Trades
Spread betting firms also provide longer-term contracts in the form of quarterly contracts (or futures). The difference between the daily prices and quarterly contracts is that the quarterly contract has a larger spread but avoids overnight funding charges.
Meanwhile, the rolling daily bets have tighter spreads and have rolling overnight fees if you keep the position open overnight. This fee can be avoided if you close your position before 22:00 UK time.
- You will have learned that spread betting on the FTSE 100 is a versatile way to bet on market direction.
- Understand how spread betting works and how you would profit from it.
- Discovered that spread betting on the FTSE 100 is tax-free, making it an attractive choice compared to CFDs.
- You learned how to start spread betting on the FTSE 100, including opening a spread betting account and applying risk management tools and trading strategies.
Frequently Asked Questions
Can I Spread Bet On The FTSE 100?
You can spread bet on the FTSE 100 through a spread betting account, which also grants your profits to be exempt from capital gains tax. You can bet on the FTSE 100 from Sunday night to Friday night and some brokers like IG offer FTSE 100 weekend trading as a separate market.
Is Financial Spread Betting Legal In the UK?
Yes, spread betting is legal in the UK and Ireland. While spread betting is legal in several jurisdictions, it’s popular in the United Kingdom and Ireland due to the favourable tax exemptions. As a result, many of the most reputable spread betting companies offer retail investor accounts with spread betting products.
Can I Use The Same Broker for Financial And Sports Spread Betting?
You can use the same spread betting company for sports and financial spread betting but must open separate accounts. Only a handful of brokers offer both types of trading, including Spreadex, with further details provided on the sports spread betting page.
Spread betting is an inherently high-risk activity and relies on extreme market volatility to generate profits. To protect your investment, we advise trading only through a fully licensed broker regulated by the Financial Conduct Authority (FCA). While you will remain financially responsible for liabilities incurred due to losing positions, you will enjoy additional protection against fraud.
Spread betting is a highly speculative form of trading and is not suitable for all investors. You can view all the types of trading options on our CompareForexBrokers homepage.
- Spread betting on the FTSE 100 allows you to bet on price movements without owning the underlying asset, which is suitable for rising and falling market conditions.
- The FTSE 100 is favoured for spread betting due to its lower volatility than other indices and responsiveness to UK-specific market data and news.
- Spread betting is tax-free in the UK, providing a cost advantage over other trading methods, allowing 24-hour trading, and offering flexibility for bettors.
- You can spread bet on the FTSE 100 24 hours a day, five days per week, offering you the flexibility to bet outside market hours.