Indices Trading Example
Indices Trading Example
In the following scenario, if the FTSE 100 index stands at 7050, ETX Capital may offer a spread of 7049/7051. 7049 is the ‘bid’ price – the price at which one can sell the index, whereas 7051 is the offer price – the price at which a trader can buy the index. Traders can then choose the amount of money they would like to trade per point of market movement.
If a trader predicts the FTSE 100 value to increase, they might go and buy it for £10 per point at 7051. This means that, for every point the FTSE 100 increases by, the trader earns £10. However, since the ‘sell’ level is 7049, the trader initiates the trade £20 down (£10 x 2 points), as if they were to exit the trade immediately, this is the loss that they would incur. If the trade is kept open until the trading day’s close and the FTSE 100 rises to 7061/7063 , the trader’s profit will be £100 (7061-7051 = 10 point increase, and 10 x £10 = £100).
Do note that two points of movement in this trader’s favoured direction would be needed for them to break even. Only the subsequent points of market movement in the trader’s favour would make for a profitable trade.
If the FTSE 100 had decreased by the end of the trading day instead, falling to 7039/7041, the trader would make a loss of £120 if they close at this point, as they would be selling the FTSE 100 at 12 points lower than the price that they bought for (£10 x 12 point decline).
With ETX Capital you can trade on major financial indices, such as the UK 100 (FTSE 100), Wall Street (Dow Jones), and Germany 30 (DAX). Apply for a free trial account, learn to trade or start live-trading with one of our platforms today.