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Last update : July 2010
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Spread Bet Markets: Stock Indexes
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Page Summary:
Stock indexes are the most actively traded spread bets. They include all the global indices such as the FTSE 100, German Dax, Japanese Nikkei and the three big US indexes, Dow Jones, S & P 500 and the Nasdaq 100. This article explains more. |
| Spread bets on the stock indexes are the most active bets traded alongside individual shares. The indices are split into separate groups - |
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- UK - FTSE 100, FTSE 250 and Techmark (technology stocks)
- US - Wall Street, S&P 500, Tech 100, Russell 2000 and others
- European - Austria 20, Belgium 20, EuroStoxx, DAX, Italian MIB, Netherlands, Spain, Swiss
- Asian - Japanese Nikkei, Hang Seng, India 50, Korea 200, Singapore
- Australia - Australian 200
- African - South Africa 40
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| The bid-offer spreads obviously differ from market to market depending on how popular they are. So they'll be a lot tighter, and therefore cheaper, for markets like the FTSE or Wall Street but wider and more expensive for smaller markets like the Norwegian stockmarket. |
| 3 different types of Spread Bet markets |
| Most of the larger stock market indices have 3 different types of tradable spread bets - |
- Daily Cash bets - the spread bet market is priced off the associated cash market such as the FTSE 100 index
- Daily future bet - the spread bet market is priced off the futures such as the FTSE 100 future
- Quarterly bet - the spread bet market is priced off the relevant futures contract, for example the June quarterly is priced off the June future
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| Which spread bets to trade, the Daily Bets or the Quarterlies |
| As usual it's the same answer for most spread bet markets - |
- If holding a position for under 7 days then trade the Daily Cash bets
- If holding a position over 7 days then the quarterly bets are usually cheaper
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The spreads are tighter on the Daily markets but a small financing charge will have to be paid every night if you hold an open position, whereas the bid-offer is wider for the quarterlies because the financing charge is built in, ie there's no overnight fee.
As for the daily future spread bet, most customers don't bother with this, preferring the daily cash bet.
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| Other Stockmarket related spread bets |
| Some spread betting brokers will also offer some hybrid stockmarket bets - |
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Differential Markets
These trade the differential between similar markets such as FTSE and Wall Street. Both markets will generally move higher and lower together but at different amplitudes. Perhaps you feel that whichever way stocks move the FTSE will outperform Wall Street. - See differential spread bets.
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Sector Bets
These are spread bets on different market sectors, for example Banks, Mining or Food. These add some flexibility to the trader's arsenal and can be an interesting way to trade.
For example, some traders will buy a sector bet, perhaps Food, and then sell short the FTSE index against it. Their view will be that whatever the overall market does as represented by the FTSE 100 the Food sector will outperform it. For example -
- If the FTSE rallies 5% the Food sector rallies 9%
- If the FTSE falls 7% the Food sector falls by only 1%
In both cases above the trade will be profitable.
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| 24 Hour trading is offered |
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Most of the larger stock indexes are quoted 24 hours a day. So whereas the FTSE 100 cash market opens at 8.00am and closes at 4.30pm the spread betters will offer a dealing price at all times.
This can be both good and bad news. The good news is that it adds to flexibility, traders can take profits or losses even when the cash market is closed etc. But a couple of negatives are -
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- Some traders can become obsessed about the markets, following and trading it at all times of the day and night, and
- Liquidity drops and the bid-offer spread will widen after 9pm so trading gets more expensive, plus if a stop loss is activated there's a good chance of excess slippage
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So how to handle 24 hour trading?
One of the best ways, if trading a European market, is to use 5pm-6pm as a cut off time, ie don't follow or trade the market until the official opening the following day.
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| The importance of getting the right spread bet broker |
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There are good spread bet brokers and bad ones. Having a good broker won't guarantee you profits but a bad broker will probably lead to losses as a combination of their gamesmanship and suspect software takes its financial toll.
So who do I recommend? Simple, the 2 brokers I personally use for my own spread betting. Read this page for more details.
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FREE Report - How to Learn Spread Betting and Prosper
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How to build the all-important trading experience
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Where to get trading help and advice
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Which broker to use and why
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Simple 2 month training plan to follow
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Download the FREE report |
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Read more in the Spread Betting section:
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