Articate

Many people in the UK want to know how to trade the FTSE 100 because they may think it is currently too low or too high at the moment, and want to generate some profits from their predictions. Thankfully FTSE 100 trading is actually quite easy in this day and age, and there are lots of different ways you can trade this index.

If you are bullish about the future prospects of the FTSE 100, then you could simply buy shares in each of the 100 companies that make up this index. However this would be a crazy thing to do and would require a lot of capital. There are much better ways of going long on this index.

One way is to open a spread betting account. In the last five years or so spread betting has taken off in a big way in the UK and many stock market investors and traders have at least one account in addition to their more conventional share dealing account.

By using spread betting, it is very easy to go long on the FTSE 100 index. For example it is currently around 5900 at the time of writing. So if you were looking to go long with an intraday position you could trade the daily contract, which may have a quote of 5899-5901, and go long at the higher figure of 5901 for whatever stake you like.

If you stake a mere £1 per point and the index closes the day at 5941 then you would make £40 (40 points x £1). You could also close this position at any time before the end of the day if you so wish, so it really is a very flexible way of trading this index.

The great thing about spread betting is that you can go short as well, which is great if you think this index is overbought and likely to fall in the future. You can trade intraday positions or you can trade contracts that expire in several months time if you have a longer term view.

An alternative approach is to trade option contracts. These are a little harder to understand and have a much steeper learning curve. In fact I’ve never actually used them myself in all my years of trading, but they are an option (excuse the pun).

If you are bullish about the future prospects of the FTSE 100 then you would buy a call option and conversely if you think this index will be below a certain level at a future date, then you can use put options. The advantage here is that you can use price levels that are a long way away from the current level. So options contracts basically give you the right to buy or sell this index at a certain price on a specific date in the future.

A final way you can trade this index is to use ETFs, short for exchange-traded funds. There are now a few different FTSE 100 ETFs that you can trade, and they are very easy to understand because they move in accordance with the actual index and can be traded just like any other share. There is no expiry date and you can buy and sell them whenever you want. So if the index goes up by 10% and you had bought the ETF then you would make approximately 10% profit.

So the point is that there are several ways you can trade the FTSE 100. Short-term traders may prefer trading this index via spread betting or through options trading, whilst buy-and-hold investors and long-term traders may prefer to buy the actual FTSE 100 ETF instead.