How to Trade Indices using Spread Betting

9indices280813This article is intended to target novices who are planning to execute spread bets based on indices. Spread betting brokers have reported that trading indices is the most popular choice of traders accounting for over 50% of their business. In particular, the Dow Jones Industrial, DAX and FTSE 100 are the most used assets.

Even if you are already making consistent profits from spread betting, you are still advised to investigate the merits of share indices because of the many benefits that they offer. For instance, one of the main advantages is that, unlike individual companies, indices can never be taken over or go bankrupt. In addition, opening spread bets structured on indices enables you risk smaller amounts of your capital than if you made investments using more traditional financial mechanisms, such as the futures markets. You also do not need to concern yourself about variables, such as currency fluctuations.

 

What are the Most Popular Financial Indices?

They represent a market sector comprising a number of member companies. Most major countries have their own indices, such as the S&P 500 in the USA; the FTSE 100 in the UK and the DAX 30 in Germany. Each index comprises a number of stocks and the most popular indices traded are as follows:

FTSE 100 represents the shares of the 100 biggest firms listed on the London Stock Exchange

FTSE 350 represents the shares of the 350 biggest firms listed on the London Stock Exchange

FTSE 250 represents firms that are listed in the FTSE 350 but not the FTSE 100. Although these firms are large trading entities, they are still not big enough to qualify for the top 100.

ISEQ represents the shares of about 60 firms quoted on the Irish Stock exchange

DAX 30 represents the shares of the 30 largest German firms.

Dow Jones Industrial Average represents the shares of the 30 biggest US firms. The term ‘Industrial’ can be misleading as this index includes stocks, such as Disney and Microsoft, which are not directly involved in ‘heavy industry’

S&P500 represents the stocks of the 500 biggest US firms.

NASDAQ 100 represents the stocks of the 100 biggest firms listed on the NASDAQ Stock Exchange. This index was been specifically devised to attract technology stocks, such as Google, Apple, Facebook and Microsoft, etc.

Hang Seng Index is a market capitalization-weighted index of 49 firms that are quoted on the Hong Kong Exchange.

Nikkei 225 is also known as the N-225 or Nikkei-225 and represents 225 companies quoted on the Tokyo Stock Exchange.

Depending on your strategy in spread betting, you can use a number of different online resources, trading journals and websites to help you.  The www.FT.com/markets and www.digitallook.com both contain great, free, and regularly updated information on the markets and current news.

Why Indices are so Popular?

One of the reasons why indices are so popular, as opposed to trading individual stocks, is that they can be used to assess and rate the performance of fund managers. For instance, if you detect that a major index, relating to your market of interest, has appreciate by 10%, then you must expect that your account manager should have achieved at least an equivalent performance.

A failure to do so should prompt you to seek alternative options. In contrast, you should consider increasing your holding if your manager surpasses the norm. If you trade yourself, then comparing your performance against that of indices will assist you in determining if you are on the correct path or if you need to make some fundamental changes.

 

Get rid of your Pre-Conceived Notions

Using spread betting to trade indices is a great starting point but will it ensure your success? Sadly, if you are a beginner this is not the case unless you can shake off your initial perceptions of spread betting.  For example, many brokers and companies persistently launch heavy marketing campaigns promoting the image that novices will become very wealthy from spread betting in no time at all. Large quantities of products are continuously advertised that guarantee almost instant success. However, historical results and statistical results portray not such a rosy picture by indicating that a large majority of novices lose their entire invested deposits within 3 to 4 months from startup.

As a priority, beginners must develop a powerful mindset if they wish to spread bet successfully. They need to understand the importance of stressing the psychological aspects of trading because it is this that will finally decide their fate. Of course, spread betting tools, products and techniques are important, but it is their correct usage over time that will ultimately determine how successful you will be at spread betting.

You can gain an understanding about why this is so by considering the following. Many spread betting brokers now exist who can provide you with the facilities and opportunities to trade this very lucrative market. However, only a small section of traders make a worthwhile living from spread betting. So, what is going on and what is the truth? What are you not being told? If you have easy access to all these amazing spread betting tools, then surely acquiring profits must be just a Sunday afternoon stroll.

Sadly, this happy scene does not reflect reality in any shape or form. In fact, the relentless marketing barrage has extremely negative effects on the psychology of beginners and the unwary. This is why you must realize that attaining the right mindset is so essential to your success. If this is so, how can you quickly achieve one?

To answer this question, you must first rid yourself of the above misconceptions so that you can approach spread betting with a professional and business-like attitude. For instance, most novices begin their trading careers believing that spread betting is a ‘get-rich-quick’ scheme which requires hardly any effort on their behalf to achieve great riches.

As a consequence of heavy marketing and publicity, they actual believe that all they need to do is either buy a spread betting strategy or just jump on the bandwagon of some spread betting guru. Unfortunately, both solutions are doomed to failure as statistics emphatically demonstrates.

 

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