Academy How to trade FTSE 100

FTSE 100 Index – Definition and characteristics

The Financial Times Stock Exchange 100 Index (FTSE 100) is a stock market index of the one hundred companies listed on the London Stock Exchange with the highest market capitalization. The FTSE 100 stock index is also nicknamed the Footsie index, so if you hear someone talking about the Footsie index, it is most likely the FTSE 100 index.

FTSE 100 companies represent about 81% of the entire market capitalization of the London Stock Exchange.

Most of the companies included in this index are internationally oriented, so the direction of the FTSE 100 index doesn't necessarily say anything about the health of the UK economy. If traders want to examine the status of the UK economy, they can use the FTSE 250 index, which includes smaller companies selling their goods and services to domestic customers.

The regular trading hours for British shares (and also for this index) are from 9:00 AM CET to 17:30 CET.

History

The FTSE 100 started trading on January 3^rd, 1984. Since then, its average yearly return is 19%. Since the financial crisis (including the year 2008 when the index lost 31%), the average annual return is 12%. The index posted record highs in May 2018, and since then, it traded sideways, mainly due to the Brexit uncertainty. Therefore, the Footsie underperformed the US and German indices, which continued in their bullish trajectories throughout 2018 and 2019.

Performance

We already said that the FTSE 100 index had underperformed the US and German stocks. If you look at the weekly chart, you can see why. In five years, the Footsie has moved nowhere and is trading at 2015 levels in April 2020.

When the coronavirus selloff hit the markets in March 2020, the Footsie immediately dropped to five-year lows, while other indices declined to one to three-year lows.

_{Source: Purple Trading Metatrader 4}

As the Bank of England has not been so aggressive in easing monetary policy and the UK is still facing Brexit problems, the Footsie will likely underperform other indices over the next quarters.

FTSE 100 index – quotes and trading

If you want to trade the FTSE 100 index, take a look at the picture below. The ticker of this index in our MetaTrader 4 platform is FTSE.

_{Source: Purple Trading Metatrader 4}

Lot value calculation

When you click on the NSDQ ticker in our Metatrader 4 platform, you can see that the spread between the Ask and Bid price is between 1 – 2 GBP during the times of high liquidity (usually when London and New York are open for trading).

The minimal volume for this index is one micro lot (0.01). If you trade half a lot, you will earn or lose 5 GBP per each GBP the index makes. For example, you buy half a lot at 5,700 GBP, and the index goes to 5,800 GBP. Your total profit will be 500 GBP (calculated as 100 GBP movement * 5 GBP profit per each GBP of the move). The same logic applies to calculate your profit or loss when entering a short position.

Keep in mind, that this index is quoted in GPB – British pounds; thus, if your account is in EUR, each point of the index will yield circa 1.10 EUR loss/profit.

As with everything, you can trade at the current market price (market execution), or you can use pending orders (limit and stop orders). It's not necessary to enter the stop-loss and take-profit order right now – you can open the trade without them and add them later.

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