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What is the FTSE 100 and how can you trade it?

Published on: 21/12/2021 | Modified on: 19/08/2022

This article covers some key details you need to know about the FTSE 100 index, which is a benchmark for the UK’s stock market. Learn how you can get involved with FTSE trading, which can involve speculating on products that are based on the FTSE 100 index, including trading on derivatives and exchange-traded funds (ETFs).

KEY POINTS

  • The FTSE 100 index is a benchmark of the UK’s stock market performance
  • It includes 100 companies with the highest market capitalisation
  • These companies represent a diverse range of sectors such as healthcare, oil and gas, finance, mining, consumer goods and defence
  • You cannot directly invest in the index but speculate on its price movements using derivative products like spread bets and CFDs
  • Index funds from Vanguard, HSBC and iShares track and replicate the performance of the index
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What is the FTSE 100 index?

The FTSE 100 stock index measures the top 100 companies listed on the London Stock Exchange (LSE) with the highest market capitalisations. Nicknamed the “footsie”, it’s one of the top stock indices in the world and is equivalent to the S&P 500 in the US or Nikkei 225 in Japan. These all represent a benchmark for their country’s stock exchange.

Large-cap stocks are often attractive to traders, given their relatively reliable and stable cash flows, balance sheets and reputation, along with the ability to reward investors with dividend payouts. For this reason, the FTSE 100 is one of the most popular indices that’s invested in worldwide.

FTSE performance

Companies that are listed on the FTSE 100 have some of the largest market capitalisations in the world and are leaders within their respective industries. Altogether, the index is valued at approximately £1.96tn as of November 2021, according to the London Stock Exchange. This highlights the magnitude of the index, along with its share price, which can rise along with its valuation.

List of companies on the FTSE 100

The FTSE 100 index covers all sectors of the stock market. In particular, it features leading companies within the healthcare, technology, retail, consumer goods and energy sectors. Pharmaceutical stocks are a notable contributor to the FTSE 100, as well as raw material suppliers, such as oil, gas and mining stocks. Below are some examples of the biggest FTSE 100 companies in the UK by market capitalisation, according to their industry.

Healthcare:

  • AstraZeneca

  • GlaxoSmithKline

Oil & Gas:

  • BP

  • Royal Dutch Shell

Finance:

  • Hargreaves Lansdown

  • Barclays

Mining:

  • Rio Tinto

  • BHP

Consumer Goods:

  • British American Tobacco

  • Unilever

Aerospace:

  • BAE Systems

  • Rolls-Royce

What are the FTSE trading hours?

FTSE 100 trading hours usually depend on the stock market trading hours​ for the London Stock Exchange, which are between 08.00 and 16.30. However, trading hours also depend on each individual broker, as some offer FTSE weekend trading.

Some brokers also offer futures (or forward contracts​). These are agreements between a buyer and seller to trade the asset at a future date and price, allowing you to speculate on the price of the stock index over the counter (OTC), rather than through an exchange. Using forward contracts, you are able to trade outside of LSE hours.

How to trade the FTSE 100

The FTSE 100 is a stock index which can’t be invested in directly. Therefore, traders can instead speculate on instruments that are based on FTSE 100 constituents by trading on derivative products, such as spread bets and CFDs. Another way to get involved with the index is to buy exchange-traded funds directly (which cannot be done with CMC Markets) or trade on ETFs that are based on the FTSE. We explain these options in more detail below, and which you can and cannot do with CMC Markets.

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Investing in exchange-traded funds

FTSE ETFs are index funds that are comprised of the same 100 constituents as the FTSE 100. Exchange-traded funds​ work in the same way as shares and can be bought and sold on a stock exchange. By closely tracking the prices of the index, this type of product gives investors exposure to the underlying asset. Some popular FTSE ETFs include the following:

  • iShares Core FTSE 100 UCITS ETF (ISF)

  • Vanguard FTSE 100 UCITS ETF (VUKE)

  • HSBC FTSE 100 UCITS ETF (HUKX)

Exchange-traded funds can be a cost-effective way to gain exposure to a large number of constituents and this also helps to spread risk and diversify your trading portfolio.

What are some FTSE trading strategies?

Many investors tend to buy FTSE ETFs outright or trade the FTSE 100 in the long term, which is known as a buy and hold strategy. This is because the index is known for being slightly more stable, in comparison with other more volatile assets, and these types of stocks can generally provide profitable returns over a longer period of time.

However, some traders prefer to stick with short-term strategies that can be used when trading the FTSE 100, such as:

  • Day trading: this strategy involves traders dipping in and out of the market to try and take advantage of very small but frequent price fluctuations and closing out their positions at the end of each day with the aim of making a profit.

  • Price action trading: traders can read and interpret price action on a trading chart. Although the FTSE is known for having slightly less internal volatility than others, it can still fluctuate rapidly in price due to external events, such as the political and economic instability of the country. In turn, this could have an effect on the entire index’s value, regardless of how many assets there are to offset the decline of a large constituent’s performance.

  • Swing trading: this medium-term strategy involves taking a buy position for a number of days or weeks before selling the asset, capturing its swing in price. It aims to take advantage of market fluctuations as the price fluctuates between an overbought and oversold state.

Regardless of the product that an investor or trader chooses in order to access the FTSE, they should always consult their risk-management strategy​ before opening any positions.

How to trade on our UK 100 instrument (based on the FTSE 100)

At CMC Markets, we offer a range of spread betting and CFD (contracts for difference) derivative products that allow you to speculate on the price movements of financial assets without taking ownership.

Spread betting

Spread betting​ allows you to trade tax-free* on derivative products that are based on the FTSE 100 index without taking ownership. This means that you can go long or short on the position when necessary. If you think that the value of the FTSE-based instrument is going to rise, you could buy or go long, and if you think that the value of the instrument is going to fall, you could sell or go short.

CFDs

CFD trading​ is another type of derivative trading that does not involve taking direct ownership of the asset. A CFD is an agreement to exchange the difference in price of an asset between the opening and close of a contract. While spread bets are calculated using a stake size, CFDs are measured in units. For every point the instrument moves in your favour, you profit by a multiple of CFD units that you have bought or sold, or for every point the instrument moves against you, you make a loss.


For example, our UK 100 – Cash product is a derivative based on the FTSE 100 index. You can trade on it by following the steps below:

  1. Open an account. You will automatically be granted access to a risk-free demo account where you can practise your strategies first.
  2. Choose your product. We offer a range of derivative products for trading via spread betting and CFDs.
  3. Explore the product library. Search for our UK 100 – Cash instrument, which is based upon the FTSE 100.
  4. Apply risk-management tools. For example, many traders choose to utilise stop-loss orders to prevent losses as much as possible.
  5. Decide on a strategy. Our derivative products allow you to take both sides of the market, so you can open long or short positions.

Example of spread betting the UK 100

Let’s say that you wanted to go long on our UK 100 instrument because you think that the price of the FTSE index is rising, and this may be reflected in our instrument’s price. The following information is taken from our Next Generation platform:

  • Sell price = 7214

  • Buy price = 7215

  • Spread = 1

  • Margin rate = 5%

You could create a buy market order at £5 per point. In line with the margin rate for the UK 100, you only need to deposit 5% of the full trade value, so this calculation will be (5% x (£5 x 7215)) = £1803.75.

Let’s say that your prediction was correct and the value of the index increases over a period of time. As the UK 100 is based upon the FTSE, the derivative therefore reflects this increase to reach a new buy price of 7231 and sell price of 7230. You decide to close out your position at the new sell price. As you opened a long position at 7215 and closed out at 7230, the price has moved 15 points in your favour. Your profit will be this figure multiplied by the stake size, so 15 x £5 = £75.

If the market moves against you, you can calculate losses in the exact same way as profits, by multiplying your stake size by the number of points that the index has dropped by.

Spread betting is a leveraged product, which means that you could make a profit if the market moves in your favour, but if the market moves against your position, this will result in equally large losses. Consult our guide to leverage in trading​ for more information.

If you were to have taken the same position using contracts for difference (CFDs), one difference would be that your stake size is instead measured in units. Therefore, the equivalent of a £5 stake size would be to buy 5 units of the UK 100 instrument. Your profit (or loss) can be calculated by multiplying the number of CFD units by how many points the instrument has moved in your favour (or against you). Another difference between spread betting and CFD trading is how they are priced.

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At CMC Markets, we offer out-of-hours trading on favourites like the UK 100 24 hours 5 days a week (bar a 1hr break at 22:00), so you don’t have to stop when the markets do. Read more details about market hours, margin rates and spreads on our instrument page for UK 100 – Cash​.


*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.
**No.1 Web-Based Platform, Platform Technology and Professional Trading, ForexBrokers.com Awards 2021; Rated Highest for Trading Ideas & Strategies, Seminars & Webinars, Trade Signals Package and Ease of Account Application/Opening, based on highest user satisfaction among spread betters, CFD and FX traders, Investment Trends 2020 UK Leverage Trading Report.


CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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