Spread betting on indices is a popular way to gain exposure to the world’s major stock markets without buying shares directly. In this guide, I will cover what indices are with examples of how to bet on them.
What Is A Spread Bet On An Index?
There are several ways you can try to profit from the price movements of an index, these include investing in the index itself and owning a contract for difference (CFD) of the index are two such examples or you can spread bet on the index.
A spread bet on an index allows you to speculate on the price direction of stock market benchmarks while taking advantage of spread betting’s unique features.
Before I explain what spread betting on an index is, it is best to clarify exactly what indices are and what spread betting is.
What is an Index?
An index is a number that represents the prices of a collection of underlying stocks. Indexes are used as a way to track how overall markets and segments of markets are trading.
The value of the index is generated from the shares within the basket, so if the share prices are rising, then the index will rise (and if the stock prices fall, so will the index).
However, every stock price movement is not equal, the indices often have a special weighting system that reflects the importance of a stock on the overall market. The most common form is market-cap weighted (such as the S&P 500 and FTSE 100), which gives stocks with the largest market capitalisation a more significant influence on the index value (as these are most likely to drive the overall economy).
Indices are essential for the markets as they allow you to gauge a country’s performance. If the top index is performing well (with all of the top companies also performing), it is a sign that the economy is healthy.
You may have heard of some top indices like the FTSE 100 or the S&P 500, which track some of the world’s top companies like Apple, Microsoft, HSBC and BP Oil.
I think if you like the idea of spread betting forex, you’ll also like indices trading. It offers similar market movements giving you lots of betting opportunities each day (especially the DAX 40 and the S&P 500), and (in my opinion) can be easier to interpret than currencies.
What is a spread bet?
A spread bet in finance is a derivative of an underlying market that allows you to bet on the price direction without owning the asset itself. Because you don’t own the asset, you can bet long (buy) and short (sell), allowing you to bet on price movements in either direction. Features that make spread betting appeal include:
- Tax-free trading because the Financial Conduct Authority (FCA) has categorised spread betting as a gambling product and therefore is exempt from capital gains and stamp duty tax.
- Spread betting is a derivative of the underlying market, which allows you to bet if the market will rise or fall, making it an excellent product during volatile times.
- Your spread bets are in GBP only, so if you choose to bet on the price of DAX40 you will not have any exposure to the EUR or be charged a currency exchange fee.
- Spread betting is a leveraged product, meaning you only need to deposit a portion of the total value of the bet. This allows bettors with smaller accounts to bet on indices too.
Spread betting on an index
Putting the two together we can say a spread bet on an index allows you to speculate on the price direction of stock market benchmarks without needing to own stocks for multiple companies individually. Choosing to spread bet allows you to get all the benefits that spread betting offers should prices move in the direction you place your bet on.
Why Trade Indices?
There are many benefits if you choose to spread bet indices, including:
1. Tight Spreads And Fees
You can bet on indices with low spreads from 1 point, making them one of the cheapest spread betting markets to speculate with. Using spread bets allows you to buy and sell international indices in British pounds, so you do not have to pay any conversion fees if you want to bet on indices like the US500 or DAX40.
2. Commission Free Trading
Another benefit is that you can spread bet indices commission-free because all trading fees are built into the spread. The spread is the difference between the bid (sell) and ask (buy) price. An example of a spread would be if the FTSE 100 has a bid on 7050 and an ask on 7051; this would be a spread of one point. If you were to stake £10 per point, the fee to enter the bet would be £10 (1 point spread x £10 stake). Low betting costs can lead to larger profits.
3. 24/7 Trading Hours
One of the stand-out benefits of spread betting Indices is that you can bet on them 24/7 if you wish. This allows you to speculate on the markets in the early morning, late evening and even over the weekend with some spread betting companies such as IG.
4. Range Of Markets
Most brokers will offer 15 to 100 of the most popular indices covering markets in the US, the UK, Europe (i.e. Germany, France and Netherlands), Australia and parts of Asia. However the number of indices you could buy is limitless, there are an estimated 5000 indices in the US alone which is actually more than the number of individual stocks.
Major indices include NASDAQ 100 (US Tech 100, The US), Dow Jones Index (DJIA – Wall Street, The US), CAC40 (France), DAX40 (Germany), the S&P500 (US), ASX200 (Australia) and FTSE100 (The UK). The most popular indices measure the performance of blue chip companies in their respective markets.
Indices Spread Betting Example
Let’s say you want to go long (buying) on the FTSE 100 at the price of 6889 and stake £10 per point, and this will give you a market exposure to the FTSE 100 of £68,890 while only needing to have £3,444.50 in margin to place the bet because the index has a leverage of 1:20.
The FTSE 100 rises to 7281 and you decide to close your bet after realising a huge profit over a few weeks. The market moved 392 points (7281-6889) equating to £3,920 profit (£10 x 392 points). This resulted in a 114% ROI because you used margin to open the bet, which was £3,444.50 – illustrating how leverage can amplify your profits. If you had used no leverage, you would have made £3,920 profit too, but you would have had to pay the entire £68,890 to enter the bet.
If the market had dropped instead to our stop loss level at 6698, you would have lost 191 points (6889-6698) or £1,910 (over half of your margin). This helps illustrate the risks of the magnified losses on spread betting.
What Are The Most Popular Indices Types To Spread Bet?
1. Daily funded bets
The daily funded bet (DFBs) is the core spread betting product offered to speculate on the markets and is also available to use on most markets the broker offers. You will likely use only DFBs if you are a short-term bettor because it is more cost-effective.
DFBs are the most popular method of spread betting because it has the tightest spreads and no extra fees if you close the DFB position before 22:00 UK time. If you keep the DFB open, you will incur a rollover fee, essentially the cost of borrowing the money to fund the leveraged bet.
I prefer to use DFBs as a day trader. I look to have a position open for a few hours or so as my trading views are very short-term. As I bet mostly forex and indices, the markets move fast, allowing me to capture a good chunk of points throughout the day, so I am happy to have tighter spreads on DFBs.
2. UK and US futures
Futures is another type of derivative (similar to spread betting and CFDs) that allows you to speculate on the market direction. However, future contracts have expiration dates, and you are obligated to settle the contract in either cash or receive the underlying asset (like wheat or coffee). Don’t worry, as you will be spread-betting them, so you’ll never receive the 10oz of gold you bet on.
If you want to hold a spread bet longer than a couple of days, you should use the futures offered by the spread betting broker. These markets have wider spreads but no rollover fees, making them significantly cheaper to trade over longer trading periods.
The most common UK future is the FTSE 100, which is the benchmark index of the UK’s overall economic health. While in the US, which has three main indices, all offer attractive opportunities. If you want to bet on the US economy, you should spread bet on the SP500 futures, a composite of top companies like Apple, Microsoft, Amazon, and Nvidia, some of the world’s highest-earning companies.
3. Euro futures
Like the UK and US futures, you can also bet on Euro futures, which consist of the most popular indices like the France 40 (CAC40) and German 40 (DAX40). Or you can bet on the STOXX 600, an index with the top 600 companies across 17 European countries, giving you a broader market exposure across Europe. These futures are ideal if you want to speculate on European markets over a longer horizon, as they will be cheaper than holding a DFB open.
4. Asia futures
If you prefer betting during the Asian sessions or want exposure to the Asian economies, you’ll have access to a solid range of futures. For example, you can spread bet on the Hang Seng (Hong Kong index), Nikkei 225 (Japan’s index), Shanghai Composite Index, and the S&P/ASX200 (Australia) futures markets.
How Does Leverage Impact Spread Betting?
Using leverage allows you to spread bet on markets by funding a small portion (the margin) of the total value of the asset you want to trade with your own capital. By controlling a larger position through leverage, your profits (and losses) will be magnified, which is why spread betting is known to be risky.
You’ll be able to see how much leverage the brokers will offer you on a market as they will provide a ratio that will look like 1:30 (offered on forex majors) or 1:20 (offered on indices, forex minors). The leverage ratio means that with every £1 you deposit as margin, the broker will loan you £XX amount to open the trade, so if the ratio is 1:10, the broker will loan you £10 for every £1 you deposit.
Leverage is built into the spread betting product, so you cannot bet without it. You should develop risk management strategies to protect your capital when the market turns against you and maximise your profit potential.
Outside Of Indices What Else Can Uk Traders Spread Bet?
1. Commodities
A popular market for spread bettors is commodities such as precious metals (i.e. gold and silver), energies (i.e. oil, gas) and soft commodities such as coffee and wheat.
Like indices, commodities are impacted by global news and events, making them sensitive to price swings and therefore an attractive market to bet on. Additionally, when the markets are bearish or in rising inflation markets, then spread betting gold and silver provides a hedge against this (as a bonus, the hedged returns are tax-free).
2. Shares
If you don’t want to bet on a whole index, then you can spread bet shares. Spread betting allows you to bet on a company’s price movements (up or down) without having to own the share certificates.
Using spread bets is an attractive way to speculate on shares because you don’t have to pay stamp duty or dividend tax if your shares pay them. Additionally, you do not have to pay any commission when betting shares; instead, you just pay the spread compared with paying 0.5% commission and a spread when using CFDs.
You can also take advantage of the fact that you can bet on international stocks in GBP, so you don’t have to pay any currency conversion charges.
3. Forex
Another option to bet on is the forex market, one of the most popular markets to spread bet on. Forex allows you to take advantage of its volatility, which means there is potential to make decent profits in a shorter time frame.
Trading markets for Forex are open to trade 24 hours during the trading week (Mon – Fri), allowing you to trade before and after work. This is different to stock markets, which close at 1630 UK time.
What Affects Indices?
Because indices are a basket of companies, the price of an index can be influenced by a range of events.
Economic data
Several high-impacting economic data releases will move the index. One of the highest impacting data for every country is the Gross Domestic Product (GDP) figures released every quarter.
The Gross Domestic Product impacts an index’s price as it is the overall health indicator of a nation’s economy. An expanding GDP indicates that the economy is growing, a bullish signal to buy an index. On the other hand, a shrinking GDP signals that the nation’s economy is contracting, which is not a good sign for bettors and a bearish signal to short the index.
I’m a big believer in understanding economic data as it drives the prices of everything fundamentally. For example, the US GDP is a top indicator of how the S&P500 performs, and if you understand what the overall picture is of the US economy, you’ll be entering bets that are not only backed by technical analysis but also the fundamentals.
Political events
Geopolitical events such as international tensions can create uncertainties in the market, and these will impact the price of an index because the countries in conflict could impact the companies within the index – such as blocking business activities.
Corporate earnings
Since the indices are a collection of the top companies in the country, the performance of these companies impacts the price of the index. If most companies report solid performances every quarter, the index will likely rise as the share prices of the companies will be rising. However, if the companies report losses, it will also affect the price, as the share price of the companies that have reported negatively will fall.
I find it a good idea to know when the top companies are releasing their earnings, as they can have a hefty impact on the index you are betting on. By knowing this, I can avoid any knee-jerk reactions based on individual stock earnings.
Best Spread Betting Brokers For Indices
Pepperstone – Best UK Spread Betting Broker
Pepperstone provides excellent services across the board based on our tests. Our tests found the broker has among the fastest execution speeds of all brokers, a top selection of spread betting platforms (MT4/MT5, cTrader, and TradingView), and low trading spreads on Indices from 0.4 points on US500.
Additionally, the broker has 28 indices to spread bet on (more than most brokers on this list) plus 62 Forex pairs, 25 commodities, and 1000+ stocks. Automation is also possible, not just via Expert Advisors (EAs) with MetaTrader but also with Capitalise.ai (with an MT4 account), which allows you to create algo to build your automated trading strategy with no code.
City Index – Great Spread Betting With GLSO
We rated City Index for its focus on risk and performance management tools, which are essential if you are a beginner to spread betting and need to protect yourself from mistakes all new traders make. Spread betting with City Index is via the in-house developed WebTrader and mobile app and it comes with a guaranteed stop-loss order (GSLO), a very useful risk management tool for beginners. GSLO not only exit at the stop-loss price you define (no matter how volatile the markets are) but also protects you from slippage. The platform also provides excellent tools to track your performance, such as the Performance Analytics tool that monitors your betting performance and provides real-time feedback.
You can utilise these risk and performance management tools with the 20+ indices available on City Index along with 84 currency pairs, nearly 30 hard and soft commodities, 11 bonds, 4500 options and 4500+ global stocks.
IG Group – Best For Range Of Indices Overall
IG Group offers an impressive 80+ indices for you to trade, making it the clear winner if you want choices for the indices you can spread bet with. One unique feature I found with IG is that spread betting is possible 158 hours a week, far more than the City Index with 120 and CMC with 113, this is because they have weekend indices like Weekend UK100 and Weekend Wall Street. IG Group is also one of the few spread betting companies that offer futures markets on indices, allowing you to reduce your costs if you want to bet on an indice long-term. Outside Indices, some 17,000 markets are available to bet on including 82 Forex, bonds, interest rates, IPOs, ETFs and commodities.
You can choose from IG Trading Platform (which includes a GSLO), ProRealTime and MT4 trading platforms and you can bet using different sizes (from 20p per point) and low spreads (0.4 points).
FXCM – Good Spread Betting With MetaTrader 4
FXCM has many good qualities, like low bet sizes (10p per point) and competitive spreads from 0.4 points on US500. However, their stand-out feature is the range of trading platforms they offer like Trading Station, Capitalise.au and TradingView however we wish to highlight the MetaTrader 4 platform. We like MT4 because it comes with a rich range of features like 30 technical indicators, 23 drawing tools and 9 time frames. Many betters like MT4 as you can build your own custom indicators and strategies (or download them from the MT4 marketplace) using Expert Advisors, allowing you to fine-tune how to find betting ideas.
Although the above features provide an excellent service, FXCM has a limited range of indices (15) compared with other brokers we have tested. This shouldn’t deter you as they are the major indices, including SP500 and UK100, and even have the VIX available, giving you a solid range of spread bet on.
FxPro – Best Spread Bet Trading App
We like the FxPro Edge Trading mobile app for its intuitive interface and advanced tools that make betting on the move simple. The platform comes with t110+ indicators and drawing tools, multi-device chart syncing (saving you from repeating analysis from desktop to mobile), and one-tap executions (ideal for scalpers on the move). We should also mention the advanced charting available thanks to their partnership with TradingView.
When using the FxPro Edge platform offer you can bet with 18 indices to bet on, including futures markets (which only a few spread betting companies offer), allowing you to have reduced trading fees if you want to hold a position long-term. Other markets to trade include 70 Forex pairs, shares, 3 precious metals and energies.
FxPro offers competitive spreads from 0.4 points on the US500 and 0.8 points on the FTSE 100 while also having fast execution speeds through FxPro’s no-dealing desk and tiered liquidity execution service.
OANDA – Best For Beginner Spread Bet Trading
If you are a beginner and want a platform that is easy to navigate while having low trading costs, then our top choice for you is OANDA. One of the reasons we recommend OANDA is due to their OANDA Trade Web platform and app which comes with a GSLO for risk management, behavioural pattern recognition to improve your trading and tradingView charts for deeper analysis. The broker also has the lowest stakes sizes available for you to bet with, allowing you to transition from a demo account to a live account without risking more than you want. Other quality available platforms available include MT4 and TradingView.
OANDA offers most of the indices you would expect to find from a quality broker such as Germany 40, UK100, and US Wall Street 30, these indices start from 0.4 points. If you wish to diversify, you can bet with 68 different currency pairs, 6 bonds, 3 energies, 3 soft commodities and metals including Gold and Silver vs 10 fiats such as EUR, HKD, GBP, AUD, CHF and even NZD and Palladium.
Spreadex – Top Spread Betting Platform For Sports and Financial Spread Bets
Unlike the other spread betting firms on our list, Spreadex offers financial and sports spread betting. So, if you like to dabble betting on football results over the weekend and spread bet the FTSE100 during the week, Spreadex is our number one choice. The broker offers an excellent range of markets, including 1000+ shares and 16 indices with spreads from 0.6 points.
What caught our eye is the Spreadex proprietary spread betting platform with features like automated Pro Trend lines and pattern recognition tools, making it easier for you to find trade ideas.
ThinkMarkets – Best For Automated Spread Betting With MT5
If you want to automate your spread bets on indices, then ThinkMarkets is our top choice. You can easily connect your Expert Advisors (EAs) to the MetaTrader 5 platform and instantly access spread betting markets. The broker also offers free VPS services that allow you to have your MT5 platform and EAs running 24/7 with a 99.9% uptime guarantee.
You can spread bet on a choice of 16 major indices with spreads from 0.4 points on the US500 and 0.9 points on the FTSE 100, making it one of the tighter spreads offered by brokers on our list.
Indices Spread Betting FAQs
Can you trade the FTSE 100?
Yes, you can spread bet the FTSE 100 with every spread betting company. Some brokers allow you to bet on the FTSE 100 over the weekend. However, this is an expensive way to bet on the FTSE 100.
Do indices have a spread?
Yes, all indices have a spread you must pay to enter your bets, with most brokers offering low spreads from 0.4 points on the US500 and 1 point on the FTSE 100, making it one of the lowest spread products available compared to spread betting shares.
What Is An Index?
An index is a collection of companies that are listed on the stock exchange, representing a specific market or sector within, providing a snapshot of the market’s overall performance. Examples include the FTSE 100, which represents the 100 largest UK companies, and the S&P 500, which represents the 500 largest US companies.
The ABCs of Spread Betting
If you’re just dipping your toes into spread betting, understanding indices is a good starting point. But there’s so much more to learn, especially if you’re transitioning from CFD trading or forex trading. Our spread betting Beginner’s Guide offers a comprehensive introduction, covering everything from basic terms to advanced strategies. It’s the perfect starting point for any retail investor account looking to venture into the financial market.
Learning by Doing: Spread Betting Examples
Once you’re comfortable with indices, you might be curious about how these concepts apply in real-world scenarios. Our page on Spread Betting Examples provides practical insights. It’s a great way to see how experienced traders approach the market, especially when dealing with financial instruments like currency pairs. Trust me, it’s an eye-opener for any active trader.
The Importance of Statistics in Spread Betting
Numbers are the backbone of any trading strategy, and spread betting is no exception. If you’re keen on understanding the odds and trends, our Statistics page is a treasure trove of useful data. It’s essential reading for anyone serious about making informed bets. Plus, it gives you a leg up in the financial spread betting game, which can be as volatile as the London Stock Exchange.
Diversifying with Bonds
Indices are a popular choice for many, but diversification is key in any investment strategy. Have you considered spread betting on bonds? Our Bonds guide offers a deep dive into this less volatile market, explaining how it can fit into your broader trading portfolio. It’s a smart move, especially if you’re already familiar with margin trading.
Tips for Successful Spread Betting
Mastering indices is a significant milestone, but what comes next? For those looking to up their game, our How to Succeed guide offers valuable tips and strategies. It’s designed to help you make the most of your spread betting journey. Whether you’re trading CFDs or focusing solely on spread betting, this guide is a must-read for anyone serious about becoming an active trader in this exciting financial market.
