How to trade or invest in the FTSE 100
The FTSE 100 – the UK’s most popular index – offers plenty of opportunities for traders and investors. In this guide, you’ll learn how to gain exposure to FTSE 100 price movements with cash indices and index futures, as well as ETFs and individual shares.
Interested in trading the FTSE 100 with IG?
If you’re ready to open a position on the FTSE 100, here are three steps to follow:
1. Decide whether you want to invest or trade
There are two ways to get exposure to the FTSE 100 – investing in ETFs and individual shares, or trading on the index’s value.
2. Make a trading plan
Before taking a position on the FTSE 100, you'll need to decide whether you're a short- or long-term trader – and how you're going to manage your risk.
To help you decide whether you want to trade or invest in the FTSE 100, we explain each method in detail below.
Trading or investing in the FTSE 100
|Trading the FTSE 100||Investing in the FTSE 100|
|Ways to trade||Spread betting and CFDs||Buying ETFs or shares outright|
|Market hours||11pm Sunday to 10pm Friday (UK time), non-stop||8am to 4.30pm (UK time), Monday to Friday|
|Deposit required||20% of trade size||but both profits and losses are calculated on 100% of position size, so could far outweigh deposit|
|Timeframe||Shorter term||Longer term|
|Liquidity||Higher liquidity offered by trading the index than investing in ETFs||Higher liquidity offered by trading the index than investing in ETFs|
IG also offers weekend trading hours on the FTSE 100, from 8am on Saturday to 10.40pm on Sunday (UK time).
Trading the FTSE 100
Trading is the only way to get direct exposure to the FTSE 100’s price movements. If you want to gain exposure to the FTSE 100, you can use spread bets or CFDs to speculate on price movements.
When trading, you can gain full exposure with only a small deposit (called margin) because CFDs and spread bets are leveraged and you do not take ownership of any assets. Bear in mind, though, that with leverage you run the risk of any losses or profits far outweighing your deposit. This is because they are calculated on the position’s full size, not its margin. You won’t pay any tax on spread bets and, with CFDs, you can offset any losses against potential profits.1
Investing in the FTSE 100
If you want to invest in the FTSE 100, you can buy shares in ETFs that track the price of the index or shares of individual constituents. Your aim will be to make a profit when you sell the shares at a later date. You could also receive dividend payments if made.
When investing, you need the full value of the position upfront, and you’ll take ownership of the shares. You can buy UK shares from as little as £3 commission.2
Trading cash (spot) indices means dealing at the current price of the underlying market. Cash indices are popular with short-term traders because they offer some of our tightest spreads. However, if you keep cash index positions open overnight, an additional funding charge will apply.
Trading index futures means you agree to trade the index at a specific price on a specific date. Index futures are popular among longer-term traders because the overnight funding charge is included in the spread – enabling you to hold positions for a long time without this additional cost.
When you invest in an FTSE 100 ETF, you are essentially spreading your capital out across the top 100 companies in the UK. The most common form of FTSE 100 ETF is a weighted tracker, which mirrors the make-up of the FTSE 100 directly. Examples of weighted trackers include the Vanguard FTSE 100 UCTIS ETF and the iShares Core FTSE 100 UCITS ETF.
You can invest directly in constituents of the FTSE 100 with the aim of selling them for a profit later. FTSE 100 stocks are popular among investors, partly because they often pay healthy dividends. Some examples of FTSE 100 stocks include Ocado, which has risen over 400% since Q4 2017, Barclays – with its healthy dividend yield, and defensive stocks such as AstraZeneca.
What moves the FTSE 100’s price?
The FTSE 100’s price is moved by factors including:
- Economic events - Events such as Brexit, can have a significant impact on the price of an index. Since the 2016 referendum, the FTSE 100 has tended to move inversely with the pound.
- Exchange rates - Fluctuating exchange rates can affect the FTSE 100’s price because its constituents earn a lot of their income in other countries.
- News releases - Certain news releases are generally followed by a period of volatility in the market. If the news pertains to any of the industries or constituents of the FTSE 100, its price may be affected.
- Earnings reports - Changes to FTSE constituents’ valuations can have a substantial impact on the index price, depending on the weight of the stock.
- Commodity prices - Because around 15% of companies on the FTSE 100 are commodity stocks, commodity price fluctuations can influence the index’s price quite heavily.
FTSE 100 trading strategies and tips
- Decide on your trading style: There are four main trading styles – scalping, day trading, swing trading and position trading. Each trading style describes how often you place a trade, and how long you keep those trades running
- Study charts and price action: Daily and weekly charts can help you to gauge market sentiment, while price action can help you get a feel of what the market might do next
- Use technical analysis and indicators: It can be helpful to use technical analysis and trading indicators as part of your trading strategy to identify certain signals and trends within the market
- Look for FTSE trading signals: By looking at the FTSE 100 chart, you should be able to tell if it is in a trend. You can confirm trading signals with momentum indicators such as the stochastic oscillator or RSI
- Set trading alerts: Trading alerts enable you to set specific criteria for the FTSE 100 price and be notified immediately once the criteria have been met
- Follow news: Every time news about a company, such as earnings, is released, it can affect share prices. Keep a close eye on the economic calendar to help you trade according to the latest events
FTSE 100 calculation and trading hours
The FTSE 100 is an index of the UK’s largest 100 public companies by market capitalisation. It has become a popular way to gain exposure to the UK stock market and track the performance of the country’s economic health.
The market capitalisation of the index has grown significantly since its inception in 1984, as its constituents have experienced success and growth.
How is the FTSE 100 calculated?
The FTSE 100 is calculated by weighing all stocks listed on the London Stock Exchange (LSE) by market capitalisation. The 100 companies with the highest market cap make it onto the index. Companies with a higher market capitalisation will represent a higher weight in the index and stocks with higher weightings have a bigger effect on the FTSE 100’s price.
What are the FTSE 100’s trading hours?
The FTSE 100’s trading hours are 8am to 4.30pm UK time. IG also offers exclusive weekend trading hours for the FTSE 100, from 4am on Saturday to 10.40pm on Sunday (UK time).
What are the ways you can trade or invest the FTSE 100?
What should you know before trading the FTSE 100?
How do companies get onto the FTSE 100?
To get onto the FTSE 100, a company must be listed on the London Stock Exchange (LSE) and it must be one of the top 100 companies by market capitalisation on the exchange. If its market capitalisation drops drastically, a company might lose its listing on the FTSE 100.
Develop your knowledge of financial markets
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1 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
2 Trade in your share dealing account three or more times in the previous month to qualify for our best commission rates. Please note published rates are valid up to £25,000 notional value. See our full list of share dealing charges and fees.