Spread betting on stock indices

A stock index is essentially just a number – you can’t buy or sell it directly as there’s nothing to own or exchange. As such there isn’t a ‘traditional’ way of trading stock indices – you need to deal on them using products like spread betting instead.

Spread betting providers need to create their own markets to shadow the value of the underlying index, since the exact stock indices are calculated, owned and trademarked by various organisations.

For example, the Dow Jones Industrial Average is owned by S&P Dow Jones Indices, while the German DAX is operated by Deutsche Börse. You’ll notice that each provider offers a variety of stock index markets with different names to the underlying for this reason. 

Here’s an example of a few of the markets IG offers:

Underlying index IG's market
S&P 500 US 500                                         
NASDAQ-100 Tech 100
Dow Jones Industrial Average Wall Street
CAC 40 France 40
DAX 30 Germany 30
ASX 200 Australia 200
Nikkei 225 Japan 225
FTSE 100 FTSE 100*

* IG has special dispensation to use the FTSE 100 name. Most other providers call this the ‘UK 100’ or similar.

Spread betting prices

Unlike shares, forex or commodities, there are no buy or sell prices for stock indices in the underlying market. They have exact values which are calculated on an ongoing basis. Spread betting providers simply need to wrap a spread around this value to create their buy and sell prices.

For example, say the NASDAQ-100 is at 4600, and your provider is offering a two point spread on their version of this market. This means they will add a spread of one point either side of the current value to create a price of 4599/4601.

Out-of-hours pricing

The value of an actual stock index doesn’t change when the underlying market is closed. For example, the London Stock Exchange is open from 8:00am to 4:30pm (UK time) from Monday to Friday, and outside of these times the FTSE 100 doesn’t move as none of its constituent stocks are being traded.

However, some providers are able to offer spread betting on indices outside of market hours. To do this they use the performance of other markets around the world – generally other stock indices – to predict how that index should be priced. They are essentially making their own price for the market that’s shut. These prices will also fluctuate based on the business that the provider receives while the underlying market is closed.

Since there’s a greater risk of pricing the market incorrectly during these times, providers tend to offer wider spreads out-of-hours. For example, here are the typical spreads offered by IG at different times on the FTSE 100 daily funded bet (DFB) market:

Time period Typical spread
08:00-16:30 ('In hours') 1                                       
16:30-21:00 2
21:00-07:00 5
07:00-08:00 2

Impact of leverage

When you spread bet on stock indices, you’ll need to put up a margin payment which may only be a small proportion of the value of your position. Remember that your potential loss could be much greater than this, however.

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