Now that we’ve covered the basics of the $TSE 100ex, the relationship between the cash and futures market, and how contracts are quoted, it is time to consider the various ways we can bet on the ftse 100 $ndexd indeed many other indices from around the world such as the $ow Jonese Hang Seng, and the Nikkei 225. In general there are four different ways to bet on the ftse index, which I will now cover in detail, and for each method will highlight the pros and cons which I hope will give you a flavour of each method, some of which are well established and others of which are relatively new. So let’s start with the most established of these, which in a way we have already covered, and that’s the futures market.

Futures Trading The FTSE

The $TSE futuresket is one I know well, as it is where I started my own trading career many years ago, and somehow managed to survive and tell the tale! At the time, online trading was not available, and all trades were placed by phone, direct to the broker on the floor of the exchange who confirmed and placed the order. As you can appreciate prices move very quickly and on many occasions the prices had moved significantly on my screen by the time I had placed my order with the floor broker. All very scary and not to to be recommended, but it was a great introduction to trading which sadly is little used in today’s electronic world. One of the big advantages of the futures market over the others we will cover, is that trading is conducted in a highly regulated way, where buyers and sellers are matched with each other by the central exchange, and trades are executed either on the floor of the exchange or via electronic trading systems. Each exchange develops its own products which are then bought and sold by the market participants in a regulated and fair trading environment, very different from the OTC ( over the counter) products which we will look at shortly.

The central exchange for trading the FTSE 100, along with many other principle indices is now known as NYSE Euronext, having previously been known as Liffe and based in London, but recently having been acquired by the New York Stock Exchange. The NYSE exchange quotes on a vast number of futures of which the FTSE future is just one. Being an index, there is no physical delivery and the contract is settled in cash. The contract is quoted for March, June, September and December and trades from 08.00 am ( London time) until 21.00 pm. The contract value is £10 per index point so if you buy one contract and the index falls 100 points in the $rading sessionen your position would be -£1,000 so take care! You can make money very quickly trading this instrument, and lose it just as fast! Remember also that futures contracts are highly leveraged instruments, and as such the exchange will require you to deposit a performance bond, which is effectively your guarantee that you will honour your commitments under the terms of the contract. Just like a margin call, you may receive a request from the exchange to top up your bond, depending on the volatility of the instruments you are trading, and failure to respond will result in your contracts being closed out with no notice. However, this is an excellent way to trade the ftse, as long as you understand the risks involved, and provided you manage your risks accordingly, would be my preferred way of ftse trading primarily because this is a regulated market, unlike all the others methods. If you would like to learn more about online futures trading just follow the link to another of my sites.

Spread betting the FTSE

Since the formation of the first spread betting company IG Index in the late 70’s, and it’s sister company IG markets, the spread betting sector has developed and expanded and now covers a huge range of markets and financial instruments. Amongst these instruments is of course the FSTE 100 index, which is one of the most popular and liquid financial instruments for betting, both by retail and also professional traders. The concept of spread bet trading is very simple, but like all trading carries a high level of risk with the prospect of both unlimited profits as well as unlimited losses! The essential difference between trading using a futures bet as opposed to a spread bet, is that with the spread betting company you are trading against the company itself as all the products offered are called OTC ( over the counter ). In other words these are products that you may only trade through the broker and are not traded on a regulated exchange. This is always one of the major criticisms levelled at both the spread betting and forex brokers, who are constantly accused of trading against their customers, taking out stop positions and manipulating their contract prices. Whether any of this is true or not, the fact remains that it probably does happen, and in fast moving markets you may be subjected to unfair price action and triggering of orders. The only way to avoid this is to trade in the futures market as outlined above, where all trading is conducted through a regulated exchange. Placing a spread bet on the ftse 100 index is simplicity itself, and with an online financial spread betting account, your trade is executed in milliseconds. For each trade you will be quoted two prices, a bid and offer. For a long bet it will be at the offer price, and for a short bet it is the bid price, with the difference between the two being the spread and the profit for the spread betting company. Typically you will be able to open a ftse bet around a minimum of £1 per point, ( currently available from Spreadex) whilst Paddypower Trader and IG index both offer $tse betting£2.00 per index point. Naturally this is an excellent way to learn to trade, using the minimum per point, but remember that your downside risk is unlimited, so any spread trading strategies require good risk management with appropriate stop losses. If you would like to learn more about getting started in financial spread betting then just follow the link here.

Binary Bet FTSE 100

Binary betting is a relatively new concept in the financial trading world, and one which is now gaining in popularity with new binary betting and binary options companies entering the market, expanding the products available as a result. Binary betting is very different from spread betting, and in many ways is ideally suited to the novice or new trader, as the downside risk is always known before you enter a trade, making this a very safe way to bet, and very different from spread betting where your risks are unlimited ( unless of course you trade with a stop loss, which should always be the case ). The flip side to this of course is that your profits are also known and capped before you enter the binarybet. In simple terms binary betting works on the principle of a yes/no scenario, with a binary bet priced between zero and 100, and in many ways the binary system is simply a different way of expressing a bet, which traditionally would have been priced in fractional terms or as a decimal bet. The reason that the binary system is increasing in popularity is that it is simple to quickly work out your profit or loss, your risk on each bet is always known and limited, and finally you have the option to close out ant position early, either to prevent a further loss, or to take your profits early. This is very different to the fixed odds concept of a horse losing a race where you would like to close out your bet and prevent further losses!! Well in binary betting this is the case, and is one of the big attractions. If you would like to know more about binary betting I have a separate site which explains all that you need to know in order to get started, but for now let’s look at a quick example using the ftse 100 which is one of the most popular indices for a binary bet.

Let’s suppose we expect the ftse 100 to close higher at the end of the day, then we log into our account and look for the bet “FTSE 100 index will end up on the day” The price quoted may look something like this: 46 – 48 which in essence is saying that the market is undecided at present and there is an equal chance that the index may go up or down. If the quote was at 20 – 22, then the odds, or the chances of the event happening are low, in other words the binary betting company does not believe the event will happen, ( in other words these are long odds) whilst a figure of 82-84 would indicate that there is a good chance that the event will happen, in other words very short odds. Now of course you are also able to both buy and sell the bet. If you agree with the statement ( which in this example is that the ftse100 will close higher by the end of the day ) then you would buy the bet, whereas if you disagree with the statement, then you would sell the bet. As a buyer of the bet you would buy at the higher price and sell at the lower price, in the same way as for spread betting. However this is where it now becomes very different. Suppose we decide to buy the bet in our example at 48, as we think that the FTSE 100 will end the day higher, and we buy at £5 per index point. Our downside risk on this trade is therefore 46 x 5 = £230 which is our maximum loss if the FTSE closes lower at the end of the day. We check back later in the afternoon and find that the index has indeed risen as expected and the quote is now 88 – 90. We decide to close out our bet before expiry at the end of the trading session and sell the bet at 88 for a profit of 88 x 5 = £440. Had we waited until the end of the day, and left the bet to expire, then the closing price would have been 100 ( as for all binary bets) and our profit would then have been 5 x 100 = £500. This is the beauty of binary betting, and perhaps even more so when we are on the losing side where we can prevent any further losses by closing out early. For ftse betting, the binary betting companies tend to offer shorter term bets from a few minutes, to hours and days, and up to a maximum of a month, and in addition some now offer a rollover facility so that you can extend the trade into a following period. In addition to all the other benefits outlined above, the simplicity of the quote system allows you to work out your profit or loss almost instantly which is a great feature in fast moving markets. As a footnote, always check what happens if the ftse index closes at the same price as the open! – generally this is considered a win bet as the closing price has not closed below the original.

Fixed Odds Betting

Fixed odds betting is very similar to binary betting in many ways, as the basic concept is that of a fixed risk to the downside and capped profits to the upside, so it is an excellent way to bet on the ftse for novice traders and speculators. Where fixed odds betting differs from binary betting ( although the two methods are now overlapping in many areas ) is that fixed odds bets tend to be quoted in different ways, either using traditional odds, decimal odds, or indeed in some cases binary odds! As with binary betting you can close your bet out early with a fixed odds bet, either to take profits early, or stop further losses. Where fixed odds does differ from binary betting is in the type of bets available, where you will come across bets such as once touch, double touch, barrier range, expiry range, and super double. All of these are various types of bet where a particular outcome is expected, such as with the one touch bet where a price is set at which you expect the index to reach within a specified time. If correct then your bet is successful, and visa versa. Barrier range and expiry range are excellent bets where you feel the market will trend sideways for a time, with low volatility. All the major fixed odds companies offer ftse bets, and if you would like to learn more about this form of betting then I have a site which explains all you need to know about fixed odds betting.

I hope the above has given you a flavour of all the different methods available for ftse betting, so now let’s look at all the current companies and what they have to offer for you to bet on the ftse.