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If you’re looking for a broker to trade indices on low spreads, here is a quick run down of what you need to look for, where you should start, what to avoid and some spread examples.
First of – what is indices trading?
Very simply it’s trading stock market indices like the FTSE 100, S&P 500, DAX, IBEX and the CAC. It is one of the most popular types of day trading around the world. I like to think it’s a little more sophisticated than Forex trading and slightly easier that individual stocks for day trading.
As index trading is heavily influenced by a combination the individual constituents of an index, overall economic data and self fulfilling technical analysis there is a never ending supply of news, events and signals to trade from.
Major indices are also also some of the most liquid tradable assets out there so no matter how big a trader you are your orders should always get filled.
What types of index trading is there?
- Spread betting on indices – trades structured as a bet so no tax of profits
- CFD trading on indices – leveraged trading with a contract based on the opening and closing price of the trade
- Futures trading – trade with direct market access on exchanges like ICE, NYSE, NASDAQ and CBOE.
They all basically do the same thing, which is provide access to derivatives contracts of the underlying indices. If you want to buy and hold an index in the long run you are better off with an ETF Index Tracker through your stock broker.
Which brokers offer the lowest spreads on index trading?
There are two types of spreads on index trading. Fixed and variable.
Fixed means that the difference between the buy and sell price will always be the same. Core Spreads offers fixed spreads on indices from 50p per point. For example, the spreads on Wall Street at always 1 point, the DAX is 1 point and the S&P is 3 points.
Variable spreads mean that the difference between the buy and sell price will change depending on how liquid and volatile the market is. For example, around non-farm payrolls, the market will be more volatile and the best bid offer prices will not have as much liquidity. Therefore, the prices will be slightly further apart.
For example here with IG, spreads on the FTSE are 1 point, 2.4 on the Dow and 0.6 on the S&P.
It’s a bit, swings and roundabouts really. You know where you are with fixed spreads, but with variable, during normal market trading you can get tighter prices, but they widen as the underlying market widens.
Most brokers offer competitive pricing on Index trading – ETX Capital for example is offering 0.5 points on S&P 500. But if you want to compare the most up to date pricing, go to our index broker comparison tables to compare spreads.
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Richard started the Good Broker Guide in 2015 and has been a broker for 20 years most recently at Investors Intelligence and previously a multi-asset derivatives broker at MF Global (Man Financial). Richard started his career working as a private client stockbroker at Walker Crips and Phillip Securities (now King and Shaxson) after interning on the NYMEX oil trading floor in New York and London IPE in 2001 & 2000.