Trading FTSE is an attractive option as the index has delivered a high total return in the past few years. The FTSE 100 alone has given over 100% total return in the last decade. You stand to gain more when you use the firms that come under the FTSE and its different units.
For beginners, the process may appear overwhelming at the outset. Here is a guide on how to trade the index using tools like FTSE futures, options, and more. We have also compiled some key approaches to achieve the most out of the index.
TRADING INSTRUMENTS
Multiple tools help you to transact successfully with the various listed businesses in the index with a single position. Some of the popular tools for trading FTSE are given below:
CFDs
This is an instrument where the underlying market or the FTSE 100 price is used. You get to bet on the increase or decrease in the pricing of the component stocks or companies. The agreement comprises the exchange of the price difference of the index from the opening to the closing position. Cash CFDs are popular because of their tight spreads. But you need to pay extra in case of overnight holding. This is because of the changes that often occur overnight.
Futures
FTSE future is a contract drawn for swapping a stock or set of stocks at a certain rate on a fixed expiry date. This contract is unique as it does not have a physical asset and is purely hypothetical. Further, it depends on the underlying businesses in the index and the futures rating.
Options
Options denote an agreement to buy or sell at a fixed rate on a particular date. This agreement differs from the FTSE futures as you can allow the contract to expire if needed.
ETFs and stocks
You can also use the exchange-traded funds (ETFs) that hold shares of the firms present on the index. The process applies to a group of stocks or an individual firm’s shares.
HOW TO TRADE
Here are the steps to follow for a streamlined and seamless process:
Step 1
Set up an account by choosing from the different account methods offered by your preferred broker. If you are a beginner, using the demo account first is prudent.
Step 2
Select an instrument from the FTSE futures, CFDs, Options, and ETFs present.
Step 3
Begin trading either via the MT4 or the MT5 terminals on your web, mobile, or desktop. You also get access to a diverse range of analytical features, webinars, and more.
KEY STRATEGIES YOU CAN USE
Many approaches work well and produce the anticipated results when trading in FTSE. The market condition is a major influencing factor. Your risk acceptance, available money, and trading method are other factors that impact your approach. You can pick from one of the strategies listed below.
Swing
Use of both directions of price movement to your advantage is called the swing strategy. In this method, you purchase stock when you expect an increase in its price. You sell the stock when there is an alleged price reduction. The market fluctuations are exploited in this method. It is fully technical and uses charts and analysis of individual price momentum.
Day trading
Also called intraday trading, this method is apt for active traders. The method takes advantage of the price changes that occur from the start of a day’s session to the day’s end. Traders usually have multiple open positions and do not keep them overnight.
Trend trading
In this method, you use technical analysis to identify a trend and enter orders in the direction of the trend. Many trend-following arsenals are present to help you identify the prevailing trend and follow it.
Scalping
This approach involves the use of small price movements to enter into short-term orders. Small but consistent profits occur with this method. It needs a proper exit approach to prevent debilitating losses.
Position
You hold a position for a few months or even years in this strategy. FTSE futures trading uses this type of approach. You ignore the minor market changes and profit from the changes that occur over the long term. For this, fundamental analysis is best for identifying trends. You can also use historical patterns and market trends.
FINAL WORD
Trading the FTSE is easy, provided you know about the process, strategies, and market news. Politics and the economy are two major driving factors for the FTSE. You can use data like inflation reports, currency price changes, employment stats, and policy changes to decide on your approach.
Whether you are using the FTSE futures, CFDs, or other instruments, ensure you have the right platform. A terminal with fast access to popular platforms allowing efficient use of the various tools will help you to trade successfully.