By Rob on July 23, Reading Time: 4 minutes 4. Not only will we tell you how to trade the FTSE profitably, you will then be able to apply this new found style of trading to any market so that you can take advantage of many more opportunities. You see, what you may be surprised to when discover reading this article is that we trade all instruments or markets in exactly the same way according to the story the chart is telling us, using our set-and-forget style of Lazy Trading.
We look out for the same price-action set-up on the daily timeframe, have our same rules for entry, manage the trade the same way and select our profit target in the same manner. Imagine having one trading strategy which you can use on currencies, indices and commodities on just one timeframe? Not only will this style save you an abundance of time and money … it will also save you from jumping from strategy to strategy like a dog chasing his tail.
Sound familiar? Our trading style, using price action, not only takes minutes a day to trade but can work universally across all markets and timeframes. So we have now established why trading price action on the higher timeframes is the smart thing to do and that we can apply price action to all markets. Even though the FTSE trade is below, we would have analysed the chart and traded it exactly the same way as if it was a currency pair or precious metal…this just happens to be the FTSE !
We apply market analysis and understanding of price action to arrive at the conclusion: to trade or not to trade.
We traded it according to what we saw on the chart. We saw that price action on the weekly timeframe was at a multi-year high and that the value of the FTSE had not exceeded this point since before the turn of the Millennium! So this gave us a very efficient entry at which to sell. The FTSE is what is known as an equity index. It is a measure of the performance of the top UK shares. These are typically the largest listed companies in the UK, that meet specific selection criteria.
The index was created in and replaced the FT30 index as the leading UK equity benchmark. The original value of the index at inception was index points, over its lifetime the index has risen in value sevenfold. Index membership is reviewed quarterly with demotions and promotions into the index, taking place after the review. Index membership can also change as a result of takeovers of constituent companies or business failures. But if you want a more personalised service then you might prefer a smaller broker such as Spreadex.
FTSE UK Index
You can compare brokers and decide which one is the best fit for you by using our comparison tables, either through a general trading account , CFD trading platform or Spread betting broker or if you are interested in investing in a FTSE tracker through ETFs. Trading on indices has always been a solid choice, offering the obvious advantage of constant, hour movement as well as good liquidity.
Futures contracts are derivatives that allow traders to speculate on the future price of a given commodity or instrument; in this case, the future value of the FTSE index. Each of these contracts reflects the market's expectations for the value of the FTSE index at that future point in time. As a contract month expires, so another is added into the cycle. As is common to many financial futures contracts, the FTSE futures are cash-settled. Meaning buyers and sellers of the contract pay or receive money based on the outcome of their trade.
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Without the need for delivery of the stocks that make up the index. All trades are cleared and settled through a central clearing house which becomes the counterparty to those trades. Trades are placed on a margin basis with an initial margin or deposit required at the outset of the trade and variation or maintenance margin provided as needed through the trades lifetime.
Expert's Tips for Trading the FTSE using Binary Options
Compare futures brokers here. In which, the counterparties to a trade the buyer and the seller pay or receive money, at the settlement of their trade, rather than making or taking delivery of the underlying instruments. A CFD on the FTSE is no exception, such contracts closely resemble the futures contracts described above, but there are some key differences.
Nor are they centrally cleared which means that the counterparties to a trade are the customer and their CFD provider. CFDs do not have a fixed expiry date and are not subject to fixed contract sizes. Compare CFD brokers. There is one key difference though, and that is that the deal is structured as a bet and not a trade. Spread bettors trade in pounds or pennies per point and bet on the rise or fall of the FTSE index.
Their bookmaker is the counterparty to their bet. Bookmakers can offer a range of bet durations, for example, daily, monthly or quarterly bets. Perhaps the most significant difference between a spread bet on the FTSE and CFD trade on the index is the tax treatment of any profits made. Under current UK legislation profits made from betting by individual UK taxpayers are not subject to tax. However, losses arising from betting cannot be offset against capital gains made elsewhere.
The tax treatment of spread betting has made it very popular among retail traders. Unlike fixed-odds betting, however, your potential losses are not limited to your initial stake when you spread bet. ETFs or Exchange Traded Funds are simply open-ended funds that aim to replicate the performance of a given index, sector or investment style. For the most part, ETFs offer what is known as passive investing that is they aim to track a particular benchmark rather than outperform it.
ETFs are tradeable in the same way that individual shares are. As such ETFs offer a low-cost way for investors to replicate index or sector performance, and they allow traders to quickly gain exposure to groups of stocks or market themes. It is possible to sell short of an ETF, i. Find a broker for investing in ETFs here. Huge mining and property businesses also feature in the top The other two main lists are the:. Component companies must meet the stringent requirements laid out by the FTSE group. This includes having a full listing on the London Stock Exchange with a sterling or euro denominated price on the Stock Exchange Electronic Trading Service.
They must also meet tests on nationality, free float, plus liquidity. The FTSE is made up of a significant number of index series. Each focuses on varying aspects and are based on different sectors, including those that are geared towards certain companies. You will also find some are alternatively weighted, plus those that concentrate on fixed income. What is the meaning and aim of the FTSE? It is often a relatively accurate reflection of economic and international events.
This is evidenced by the fact that the greatest one-day percentage drop was on the 20th October at So, the FTSE indexes will plummet in response to other failing markets. This is because if you track the FTSE over time you can get a feel for changes in market sentiment. The former is when more people are buying than selling, leading to a rise in share prices. If the index slumps, people are dumping their shares. Put simply, share prices are weighted by market capitalisation. This means smaller companies will have less of an impact on an index.
Part of the basic formula is concerned with the free float adjustment factor. This represents the percentage of all issues shares that are accessible to trade. To find the free float capitalisation of a company, you will first have to calculate its market capitalisation number of shares x share price. Once you have that, you multiply by its free-float factor.
This means free-float capitalisation will not include restricted stocks. Those held by company insiders, for example. The company list is best described as a football league. Those that decrease in market capitalisation will be relegated, whilst the high performers will be promoted.
The FTSE 100 Stock Indices Chart
Those changes are made each quarter. Changes that are made will be based on company valuations after the close of business the night before reviews will be conducted. The panel that makes the changes consist of independent market experts and announces new entrants. To establish those changes a banding system is used. You must be in the top 90 to be eligible for promotion.
To be relegated, you must have dropped to th. Mergers and takeovers are often big reasons behind position moves. Growth and trends in global markets also have an influence on FTSE risers and fallers. Performance can be seen in real time, with daily updates, plus live updates every 15 seconds during trading hours. The closing value is then taken at It is worth knowing that if sterling falls, many listed companies will actually see their profits increase.
This is because they receive more pounds when revenues denominated in foreign currencies are transferred into sterling. As of early , the index currently rests around all-time highs. This is because global equity stock prices have been pushed higher, firstly by low-interest rates.
However, also because of quantitive easing measures, which is when a central bank buys securities from the government or market to lower interest rates, increasing the money supply. Interestingly, Brexit has meant the big companies and movers listed in the FTSE are even more global because they need to rely less on the UK domestic economy. As such, Rentokil Initial was one of the biggest risers to be promoted to the FTSE , benefiting from the drop in the pound. On the flip side, domestic-based householder Berkely became one of the recent FTSE losers and was relegated.
Some of the largest FTSE businesses dominate the index. Shell, for example, currently has a market capitalisation of over million. You will also find banks towards the top of the list, such as HSBC, with over million. Other top contenders include British American Tobacco with around million and BP with approximately million.