Learn To Spread Bet On Indices
Equity indices are very popular with spread betters
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Betting on an index has a number of distinct advantages over spread betting on an individual share. Equity indices are useful vehicles in cases where you do not have a firm view on any specific share but you think that the market as a whole will move in a particular direction.
This sort of situation happens quite often. For instance, where there has been a strong overnight move in the US or Far Eastern markets and you feel that the Footsie would respond likewise during the course of the trading day in London, you may want to bet on the FTSE 100 index itself rather than trying to isolate and spread bet on an individual share that would partake in such a move.
Besides, given the current market and regulatory environment with the SEC in the US imposing a one-month ban on short selling on a large number of financial stocks and the FSA imposing a similar ban on shorting financials in the UK until January, for those looking to profit from further downside in the market, using the broad market index may be the practical/cheapest alternative available.
A key advantage of index spread betting
The investment and finance text books will tell you that spreading your investments across a range of markets is important for mitigating overall portfolio risk. There is an element of validity in this (although the benefit of any diversification strategy will depend largely on the extent to which the various assets are uncorrelated...but that is another article!). This is the foundation of that old saying; “do not put all your eggs in one basket”!.
One popular way of diversifying is by investing in a broad equity index rather than selecting individual equities within that index. For those with this objective in mind, the availability of spread bets on a wide range of stockmarket indices presents an opportunity to gain exposure to the desired market at a fraction of the cost of doing it the traditional way.
Practical spread betting example: Buying the FTSE 100 Index
Opening bet: you decide that the Footsie is going to rise over the next few days, so you call your spread betting broker. The Footsie is currently trading at 6300 and the quote is 6298-6302. You buy £10 per point at 6302.
Closing bet: as you expected, two days later, the price has gone up and the quote is now 6350-6354. You decide to close at 6350.
Your profit on the index spread bet is [6350– 6302] x £10 = [48 x 10 = £480]
Range of markets available for spread betting
You can place spread bets on pretty much all of the major equity indices including the UK’s FTSE 100 and FTSE 250; the Dow Jones, S&P 500 and NASDAQ composite index in the US; the DAX and CAC 40 from mainland Europe; and the Hang Seng and Nikkei in the Far East. Additionally, for the UK, some brokers make markets in over 30 equity market sectors. This presents a wide array for a pro spread better to execute various spread betting strategies based on equity index trading.
If you enjoyed this article on equity indices, then please check out the other insightful articles below:
Effective stop loss and trade management strategies for spread betting
Financial spread betting process explained
Simple moving average tools can enhance your spread betting profits
Spread betting gaps in stock prices
Trader emotion and spread betting performance
Market timing enhances your spread betting profits
Relative strength is a grossly underrated but highly effective spread betting tool
Understanding the foreign exchange markets