Summary
The Financial Times Stock Exchange 100 Index (or FTSE 100) is one of the most traded stock indices worldwide. It is a share index used to track the top 100 companies on the London Stock Exchange by market capitalization. Some of the companies listed on the FTSE are not native UK companies, but most of them are companies headquartered in the UK and are affected by daily economic decisions in the UK. Thus, many investors use the FTSE 100 index as an indicator of the health of the UK economy.
Trading the FTSE 100 index has its benefits, like flexibility and possibility of profits, but you need to use the right broker to gain access to these benefits. In this guide, we will go through the different characteristics of a good FTSE broker, so that you can select the right one. We will look at factors like spreads, leverage, trading instruments, and payment methods offered by different brokers. We will also look at how to open an account with the brokers you can trade FTSE 100, after comparing them and choosing the best ones.
We will go through the pros and cons of these brokers, trading platforms they offer, and what users on Reddit and Quora are saying about them. Finally, we will end the guide with some Frequently Asked Questions from traders who wish to break into FTSE trading.
How to Trade or Invest in the FTSE 100 Index?
One of the most popular ways to trade or invest in the FTSE 100 index is through the use of CFDs. CFDs are derivative contracts that allow traders to speculate on the price movement of various assets, like stocks, indices, and forex. By trading the FTSE 100 with CFDs, you enter an agreement with a broker to trade the price difference of the index from when a position is opened to when it is closed.
For example, let’s say you decide to buy 5 CFDs of the FTSE 100, each at £5, when the buy price is £5,000. The total value of your position is £125,000 (£5,000 × £5 per CFD × 5 CFDs), and you predict that the price is going to increase. If you are right, and the price goes from £5,000 to £5,500, you will make a profit of £12,500 (£500 × £5 per CFD × 5 CFDs). On the other hand, you can make a £12,500 loss if the price goes to £4,500.
To trade CFDs, you don’t need to put forward the whole value of the position, i.e., £125,000. You can put a small percentage, which is called margin. If the margin rate of the FTSE 100 is 5%, then you will only need to put down £6,250 to trade the £125,000 position. However, the profit or loss is calculated with the entire position. This means you could lose more money than you put into a CFD trade if it goes the wrong way. For this reason, it is advised that only people with trading experience should trade CFDs.
You can also trade the FTSE using FTSE tracker funds. Tracker funds are index funds that track the performance of market indices. Other ways of trading on the FTSE 100 are trading with ETFs or trading with shares. By trading with FTSE 100 ETFs, you take a position on the price of the ETF as calculated using the Net Asset Value (NAV) as opposed to the current index level of the FTSE. By trading with stocks, you select specific targeted stocks and trade them without opening a position that offers you exposure to the entire index.
To use any of these trading strategies, you need to register with FTSE 100 brokers that offer CFD trading.
Which Companies are Listed on the FTSE 100 Index?
All 100 companies listed on the FTSE 100 belong to different sectors and industries. The common sectors found on the listing are:
- Financial: Examples are Admiral Group, Barclays Plc, etc.
- Industrial: Examples are Antofagasta Holdings, etc.
- Healthcare: Examples are Hikma Pharmaceuticals, GSK Plc, Smith & Nephew plc, etc.
- Material: Examples are Rio Tinto plc, Antofagasta Holdings, etc.
- Consumer Staples: Examples are Associated British Foods plc, etc.
- Energy: Examples are BP Plc, DCC Plc, etc.
- Consumers Discretionary: Examples are British American Tobacco, Coca-Cola HBC AG, etc.
- Utilities: Examples are National Grid, United Utilities Group Plc, Centrica plc, etc.
- Communications: Examples are Informa plc, Vodafone Group plc, etc.
- Real Estate: Examples are Land Securities Group plc, etc.
- Information Technology: Examples are Auto Trader Group plc, AVEVA Group Plc, etc.
What Affects the Price of FTSE 100?
There are different factors that affect the performance of the FTSE 100 companies. Some of them are:
- Problems with Specific Companies or Sectors: If there is a major problem that affects a heavyweight company or sector, the FTSE 100 performance will suffer for it.
- Monetary Policy: Monetary policies like lowering or increasing interest rates can boost or reduce the performance of the FTSE 100.
- Geopolitical Policies: Political decisions like the Brexit Referendum can have a significant impact on the performance of the FTSE 100 index.
Factors to Consider when Choosing Your Broker to Trade FTSE
When comparing FTSE 100 brokers to use, there are a handful of factors to keep in mind. Some of them are:
Regulation
A well-regulated broker is often safer than an unregulated one. A regulated broker follows regulations that ensure that it is relatively safe for traders to store their funds and personal information, while an unregulated broker can disappear with your funds or sell your personal information.
The main regulatory body for FTSE 100 brokers and all brokers in the UK is the Financial Conduct Authority (FCA). Before using any broker, check that it is regulated by the FCA. For traders outside the UK, there are other financial regulatory bodies that regulate brokers, depending on the region. Check and confirm that the broker you want to use is regulated by the body responsible for regulating brokers in your region.
Spreads
A spread is the difference between the bid and ask price of an asset, in this case, the FTSE 100 index. When trading indices, the price at which the broker buys and sells a particular index is often higher or lower than the underlying market value. This is the most common fee that FTSE 100 brokers charge, especially brokers with no commission.
It makes sense to find a broker with tight FTSE 100 spreads. Different brokers add different markups to their prices, so compare them before choosing one to trade with.
Leverage
Leverage is simply borrowing money from a broker to open a position that normally wouldn’t be possible with your deposit. Leverage is often expressed in ratio, for example, a 1:20 leverage means that you can open positions 20 times the size of your deposit.
The FCA has adopted regulations by the European Securities and Markets Authority (ESMA), which states that the highest leverage brokers can offer for non-major equity indices is 1:10, and 1:20 for major indices. When looking out for FTSE 100 brokers in the UK, ensure they adhere to these FTSE 100 leverage regulations. If you want higher leverages, you can find offshore brokers that are not regulated by the FCA.
Trading Platform
A trading platform is a software used by brokers to place trades on the market. Most brokers use their proprietary platforms, but the most widely used platforms are MT4, MT5, and cTrader. Some brokers offer their proprietary platform with one or more of these widely-used platforms. Check the FTSE 100 broker you wish to use and confirm that they use the trading platform convenient for you.
Fees and Commissions
The most common fees you’ll pay when trading indices is the spread. However, some FTSE 100 brokers can charge you commissions for trading with them. You can also pay other fees like
- Overnight Fees: paid for holding a position overnight
- Deposit and Withdrawal Fees: extra charges for deposit and withdrawal
- Inactivity Fees: paid for leaving your account dormant for 6 months or more.
Reputation
The broker’s reputation is also another important factor you should consider before trading with them. A broker with poor ratings on Reddit, Quora, TrustPilot, ForexPeaceArmy, and other important review sites is not worth trading with. Read reviews till you are comfortable working with the broker.
Customer Support
Trading indices can get confusing sometimes, especially if you are a beginner or trading with a new broker. A good customer support team can help you through these confusing times, which is why you should always look for brokers with excellent customer service. Check that they have different means for reaching them quickly, like phone numbers and live chat, and good social media accounts that respond to customer queries on time.
Payment Methods
Check that the broker you are choosing has a wide range of payment methods for deposit and withdrawal of funds. Many brokers accept credit/debit cards, bank transfer, wire transfer and payment from digital wallets like PayPal, Skill, Wise and Payoneer. If possible, find brokers that accept payments in your local currency for ease of payment.
Pros and Cons of FTSE 100 Brokers
Pros
- Availability of Educational Resources and Materials
- Low Spreads
- Well-Regulated
- Multiple Trading Platforms (including Proprietary Trading Platform)
- News, Charts, and other Resources to help with Technical and Fundamental Analysis
- Low Cost of Trading
- Data Protection and Security
- Leverage for More Market Exposure
- Demo Account for Trading Practice
Cons
- Inactivity Fees
- Losses Due to Leverage
Trading Platforms Available on FTSE 100 Brokers
A trading platform is a software used by the broker to place trades on the FTSE 100 market. There are many examples of trading software available today, including proprietary trading software. However, there are only two general classes based on the device used for trading. These classes are desktop and mobile platforms.
Desktop Trading Platforms
Desktop trading platforms are trading platforms available for users on Apple and personal computers. To use these platforms, you need to use a desktop computer. Most brokers have their proprietary platforms set up on desktop computers. These platforms are often easier to use and more customizable than other common platforms, like MT4, MT5, and cTrader. However, brokers also offer these widely-used platforms on their website or desktop applications. This way, you can choose between trading FTSE on MT4 or on any of the other desktop platforms.
Mobile Apps
If you are always moving around, and want to trade the FTSE 100 index on the go, then you need to download and install a mobile app on your Android or iOS device. Mobile apps are similar to desktop trading platforms, with the major difference being the size of the trading screen. Mobile apps are built for trading on the go, since they provide live notifications and real-time news on your mobile device so you don’t miss any trading action.
Like desktop trading platforms, brokers also create proprietary platforms for mobile trading apps, so you can use them on your mobile device. Commonly-used trading platforms like MT4, MT5, and cTrader are also available on mobile devices via your broker, so you can also use that option if you prefer.
Fees to Consider when Trading and Investing in FTSE 100
Trading the FTSE 100 index is not free. Brokers charge you fees, either directly through commissions or indirectly through spreads. It is important to know the fees you are paying so you can know if trading the FTSE 100 is worth it for you. Some of the common fees FTSE 100 brokers charge traders for trading and investing in the FTSE 100 index are:
Spreads
Spreads are the difference between the bid and ask price of the FTSE 100 index. Spreads are only available for brokers that are market makers. These brokers take the opposite side of every transaction you make, for example, if you are buying an index, then they are selling and vice versa. They charge a markup that makes the price of an index slightly higher (when you’re buying) or lower (when you’re selling) than the original market price. The spread is the difference between these prices.
Check and compare the spreads of the best FTSE 100 brokers you can find and see if you are willing to pay these amounts before trading with them.
Commission
Some FTSE 100 brokers, especially No Dealing Desk Brokers, charge a commission for trading with them. The commission rate depends on the broker, so it varies from broker to broker. Before trading FTSE 100 with a broker, check that its commission is convenient for you and cheaper than other brokers who charge on the spread only. Also, there are brokers with tight spreads that also charge commission for trading with them.
Roll-over Fees
A roll-over fee is charged when you hold a position overnight. It is also called swap or overnight fees by some FTSE 100 brokers. Most brokers will tell you if they have roll-over fees and how to calculate them for each transaction. Ensure the fee is reasonable and you can afford to pay before trading with any FTSE 100 broker.
Are CFD Brokers Offering FTSE 100 Safe?
Well-regulated FTSE 100 brokers often take certain precautions to ensure the safety of investors’ funds and personal information. Some of the safety measures taken by CFD brokers offering FTSE 100 are:
Insurance: Regulatory bodies like the FCA require that FTSE 100 CFD brokers keep a required minimum account in a tier-1 bank in the country as insurance for traders’ funds. The brokers do not trade with this money or do any kind of business with it. This money helps in repaying the investors if the broker suffers bankruptcy.
Technology: Brokers often use technology like 2-factor authentication and SSL to secure traders’ personal information and funds. These software are also good for helping traders recover their account if they forget their login details.
Negative Balance Protection: CFD brokers offer negative balance protection to prevent traders from losing more than their account deposit when they trade with leverage. Leverage trading allows traders to open bigger positions than they normally would, but this means they could make very heavy losses. Negative balance protection ensures that traders do not run into debt while trading with leverage.
Even good brokers can suffer data leaks, hacking, and bankruptcy. However, well-regulated brokers are relatively safer than unregulated brokers, and take serious measures to ensure you don’t lose your money.
What Reddit & Quora Say About Brokers to Trade FTSE 100
One important way to know if a broker is worth checking out is by checking the broker’s reputation on social platforms like Quora and Reddit. We decided to go to both of these platforms to see what users there thought of different brokers for trading FTSE 100.
Reddit is often referred to as the front page of the internet because its users (called Redditors) are quick to discuss trends and other important discussions before the rest of the internet. Redditors also cover every important topic in their discussions, so you’ll most likely find more information on Reddit than on many other places on the internet.
During our research here, we found little information on the best brokers for FTSE 100 specifically. However, we found people’s opinions on the best brokers to trade index funds like the S&P 500 and FTSE 100.
Many people had different opinions about FTSE 100 brokers. One Redditor said they thought Hargreaves Lansdown. Another Redditor agreed with the first, saying that Hargreaves Lansdown has a great reputation and excellent customer service.
Another Redditor gave some examples of FTSE 100 brokers they thought were great for trading the FTSE 100. Names like DeGiro, Hargreaves Lansdown, Trading212, and TastyWorks came up in this comment.
Quora
Quora is another highly-trusted social network where people discuss a wide range of subjects, including financial topics. We searched the platform to find information about FTSE 100 brokers, and found some opinions.
One user said that while he didn’t know much about indices trading in the UK, he thought Interactive Brokers (IBKR) was the best broker to use to trade indices and ETFs. According to him, he loved the fact that they have a wide range of trading products and low commissions. He thought the only downside is the minimum deposit, which is $10,000. Other than that, this user recommended IBKR as the best broker for indices trading.
Another user said he believed any broker was fine, but he thought Interactive Brokers, Thinkorswim, and Ameritrade were the best he’d used so far.
Bottom Line
FTSE 100 is short for the Financial Times Stock Exchange 100 index, and it is one of the most traded indices in the world. It is an index that tracks the stocks of the top 100 companies with the most market capitalization on the London Stock Exchange. Different companies from different industries, like the financial, energy, and material industries, are listed on the FTSE 100 index.
There are different ways of trading the FTSE 100 index. You can trade them with leverages using CFDs. FTSE 100 leverages allow you to open larger positions than you normally would, potentially increasing your profit or loss. You can also trade them directly with ETFs or specific stocks.
Before you select a broker for your FTSE 100 index trading, it is important to look at some factors. These factors include the regulation of the broker, the spreads, leverage, fees and commissions, and the customer support the broker offers. There are two major types of trading platforms for trading FTSE 100 index, depending on the device used. These major types are desktop and mobile app platforms. Brokers with proprietary platforms can operate across both devices the same way common platforms like MT4, MT5, and cTrader can.
Users of social platforms like Reddit and Quora gave highly valuable advice, and most of them believed FTSE 100 brokers like Interactive Brokers, Thinkorswim and Ameritrade were the best because they offered low trading fees and great customer service.
Q & A
FTSE 100 is an index of the top 100 companies listed on the London Stock Exchange by market capitalization. It is known as the “Financial Times Stock Exchange 100”.
The FTSE 100 index was launched on January 3rd, 1984.
The FTSE 100 is made up of 100 companies from different industries, like energy, material, consumer, financial, etc. Some of the companies are Admiral, Barclays, HSBC Holdings, etc.
Yes, the FTSE 100 is an index, just like the S & P 500.
As at April 2022, the market cap of the FTSE 100 was £1.996 trillion.
The FTSE 100 has produced a 7.38% annualized return in the last ten years.
The FTSE is calculated by weighing all the shares in the London Stock Exchange and arranging them according to their market capitalization. The top 100 companies are listed on the FTSE 100 index.
FTSE 100 brokers operating within the UK are regulated according to the FCA standards. Some other countries regulate brokers within their region according to their regulations. However, not all FTSE 100 brokers are regulated. Some brokers are offshore brokers, meaning they are regulated by regions with more lenient rules.
FTSE 100 futures trade between 8am and 4:30 pm GMT (UK Time)
The FTSE 100 closes at 4:30 pm GMT (UK Time)
A beginner can trade the FTSE 100 with the right education, guidance, and practice. Beginners should know, however, that trading indices is risky and they are likely to lose some good money doing so.
Some FTSE 100 brokers with great spreads are eToro, CMC Markets, Plus 500, XM, IG, and Fidelity.
