How can I trade the FTSE 100?

There are a few things to consider before you start trading the FTSE.

First, it is important to understand how the FTSE is impacted by the British pound. The UK stock index and UK currency typically have a negative correlation: when the pound falls, the FTSE 100 rises. This is because many FTSE 100 constituents earn a significant amount of their income overseas. So, as the pound depreciates, the value of overseas earnings rises, which boosts constituents’ share prices and the value of the FTSE 100.

Secondly, it’s a good idea to keep up to date with any economic data announcements that could move the market price. For the FTSE 100, these include British employment rates, inflation figures, retail sales and any political announcements surrounding Brexit. Visit IG’s economic calendar to view upcoming macroeconomic events.

And finally, anyone trading the FTSE 100 needs to have a broad knowledge of the companies on the index itself. As the index is weighted, larger companies will have more impact on the price of the FTSE 100. So, keeping an eye on the large players such as Royal Dutch Shell, HSBC Holdings and Unilever will be key to understanding changes in the index’s price.

Trading the FTSE 100

If you choose to trade the FTSE 100 with derivatives such as spread bets or CFDs, you can speculate on the price of the index, exchange traded funds (ETFs) that track it, or its constituent shares. As you don’t take ownership of any underlying assets, you can go long or short on the FTSE 100’s price. You will trade using leverage, which means you only put down a fraction of the capital required to gain full market exposure. Leverage can magnify profits, but there is also the risk of magnified losses.

Another method of trading the FTSE 100 involves trading futures contracts, which are an agreement to trade at a specific price on a specific date. It’s possible to trade index futures themselves or speculate on their price with CFDs and spread bets.

Learn more about trading indices or open an account to start trading.

Investing in the FTSE 100

Investing is quite different from trading. You can’t invest in the FTSE 100 directly, but you could invest in a handful of listed companies, or spread your investment out across all the constituents by using a FTSE 100 ETF. When choosing to invest, remember that it involves buying and selling assets outright and paying the full value of the position upfront.

Learn more about investing in the FTSE 100