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.
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.
Top spread betting and CFD trading accounts for Indices (DAX, FTSE, DOW, S&P)
Spread betting and CFD trading on the major indices is risky. Which brokers are best and regulated by the FCA?
Second only to spread betting on FX, indices offer good liquidity, a decent intra-day range and pretty much 24 hour news flow.
The constant release of economic figures and leading indicators from overseas markets make them one of the most popular asset classes to trade worldwide.
The major indices are:
The German DAX
This tracks the top 30 public companies in the Germany, has big tick size of EUR25 per point in the futures market and is the first market to open in Europe. This makes it a good indicator for the FTSE, and follows on from the US indices.
The UK FTSE
The FTSE covers the top 100 companies in the UK and is generally regarded as the benchmark for the UK economy. It’s a good index, for jobbing in and out of all day.
DOW and S&P
The DOW is based on the top 30 industrial stocks in the US whilst the S&P focuses on around 500 of the biggest public companies. The S&P is one of the most heavily traded assets worldwide.
The best brokers for DAX, FTSE and DOW/S&P
Generally, the best spread bet brokers will be the ones that offer the tightest spreads. You need tight spreads with index spread betting as traders like to take quick profits on short-term intra-day positions.
But it’s not just about tight forex spreads, you also need a good balance sheet, added value, good charts, data and analysis to help make informed decisions.
Here are some of the best forex brokers and a quick summary of why they are good for index trading:
- IG – the biggest with good client sentiment-driven data
- ETX Capital – good all-round broker
- Spreadex – slightly wider, but excellent phone brokerage support
Top MetaTrader 4 Brokers for trading indices (DAX, DOW/SP & FTSE)
As well MT4 offering clients access to the Forex Markets it is also one of the best independent platforms our there for trading indices.
Index trading (second to FX) is one of the most heavily traded asset classes in the world. As with FOREX trading, the market is pretty much open all the time, there is great liquidity and news flow and there is plenty of money to be made (and lost!) from trend and chart trading.
Fortunately for traders, MT4 is offered by over 600 MetaTrader 4 brokers worldwide - but unfortunately, not all brokers are the same. So we've put together a top three brokers to open an MT4 account with. But first a little about the three main indices - we've left out the Asian indices because even though they are great markets to trade the most liquidity is when the UK is sleeping.
The FTSE 100 is the major benchmark index in the UK and consists of around 100 of the largest publicly listed companies on the LSE. Because of copyright, some brokers call it the UK 100 or the UKX. It's mainly traded via spread betting, CFDs and MT4 with brokers like ETX Capital.
The DAX consists of the largest 30 listed companies on the German exchange and is one of the most popular indices to trade. It has a good dialy range and plenty of liquidity. Trading via spread betting and CFDs on MT4 is more popular now as the contract size on the futures contract is quite large. The margin alone for one contract is abour EUR13,000 and the tick size is EUR25 per point. Using MT4 means you can trade in smaller size.
The DOW and S&P are the major US index benchamarks (as well as the NASDAQ). The DOW has the top 30 US companies and the S&P has around 500. Both are good lead indicators overnight for the UK and European markets. They also provide a good switch after 2:30pm when the UK markets calm down - opening markets are generally more volatile and fun.
Here are three of the better FCA regulated MT4 Brokers in the UK for index (DAX, DOW/SP & FTSE) trading.
ETX have been around since 1965 and rebranded in 2008 as ETX Capital. The ETX stands for Electronic, Telephone Execution. They are regulated by the FCA and are constantly rating among the best MT4 brokers in the annual Investment Trends report.
IG was founded in 1974 by Stuart Wheeler as a way for his mates to bet on the price of gold. OVer the years the firm has grown to be one of the largest brokers in the UK. They offer MT4 as well as their own excellent platform and are listed on the LSE with a current market cap of over £2bn.
XTB offer a pretty decent range of MT4 markets and were founded in 2002 is one of Europe's leading brokers. XTB provide CFD and Forex trading on over 1,500 instruments and have (as a group) over 21,000 active clients. Regulated by the FCA, have 12 offices globally including the UK. XTB is headquartered in Poland and listed on the Warsaw Stock Exchange WSE:XTB.