How to Trade FTSE 100 Index Trading Strategies
In 1984, the Financial Times of London and the London Stock Exchange teamed up to create one of the most popular market indicators for investing in UK companies.
The newly-formed company, the FTSE Group (Financial Times and Stock Exchange Group), maintains one of the world's most popular indexes that tracks the performance of the UK stock market, which is called the FTSE 100.
In this 'How to Trade FTSE 100 Index Trading Strategies' article, you will learn how the FTSE 100 index works, what are the current FTSE 100 companies and an FTSE 100 trading strategy you can get started with today!
Table of Contents
What is the FTSE 100 Index?
The FTSE 100 index, otherwise known as the Footsie, is a stock market index of the 100 largest companies by market capitalisation which are listed on the London Stock Exchange(LSE). The index is managed by the FTSE Group with prices updated every 15 seconds between the LSE's trading hours of 8 am to 4.30 pm UK time.
The UK FTSE 100 index is similar to US stock market indexes like the S&P 500 and Dow Jones 30. The price of the index is calculated using the total market capitalisation of its constituent companies.
- As the index rises it means the total worth of the companies in the index - but not necessarily all of them - is rising.
- As the index falls it means the total worth of the companies in the index - but not necessarily all of them - is falling.
Why is it called FTSE? The FTSE stands for the Financial Times and Stock Exchange Group which is the entity that created and maintains a range of FTSE indexes. The entity is owned by the London Stock Exchange Group.
How to Trade the FTSE 100 Index
1. Open an account. With Admirals, you can choose a variety of different accounts:
a. Invest.MT5 Account. This account allows you to invest in UK shares listed on the FTSE 100 index and collect dividend payments to create an income-producing portfolio. You can also invest in ETFs (exchange traded funds) which track the performance of the FTSE 100 index.
b. Trade.MT5 Account. This account type allows you to trade CFDs (contracts for differences) on the FTSE 100 index and on UK shares. This product allows you to trade long and short and potentially profit from rising and falling markets while using leverage.
c. Demo Account. With a demo account, you can trade in a virtual environment until you are ready to go live.
2. Choose your instrument. You can choose from:
a. Trade CFDs on the FTSE 100 index and over 200 of the UK’s largest companies. You can also trade CFDs on global stock market indices and stocks, as well as currencies and commodities - more than 4,000 different instruments!
b. Invest in over 300 of the UK’s largest companies or ETFs which track the performance of the FTSE 100 index. You can also invest in global stocks and ETFs from 15 of the world's largest stock exchanges.
3. Start trading!
You can also keep up to date with all the latest market movements in three live trading webinars hosted every week by expert traders.
Who are the FTSE 100 Companies?
As the FTSE100 was launched in 1984, the list of constituent companies has changed due to increasing and decreasing market capitalisation, as well as mergers and acquisitions. Many individuals would also assume that all the companies in the index are British but this is not a requirement as the company just needs to be listed on the LSE. In fact, many companies are foreign-based and make a large portion of their income overseas.
Some companies such as HSBC, Barclays, BP, GlaxoSmithKline, and others, are well-known to investors from all over the world. However, some companies like the Compass Group may not be as well-known to investors outside of the UK as this particular company focuses on contract catering services only in the UK and Ireland.
So who are the FTSE 100 companies? Currently, the top ten companies in the FTSE 100 index by market capitalisation include Shell, AstraZeneca, HSBC, Unilever, GlaxoSmithKline, Diageo, BP, British American Tobacco, Rio Tinto and Glencore. You can find the full list on the FTSE 100 web page on the London Stock Exchange website, as shown below.
You can learn more about these companies in the 'List of Biggest UK Companies' article.
Get Started with a FTSE 100 Trading Strategy
One of the simplest ways to get started trading the FTSE 100 is to use technical analysis price action patterns to help identify turning points in the market and, therefore, areas to buy and sell.
A popular price action pattern is the 'engulfing candlestick pattern' of which there are two types: the bearish engulfing candle pattern and the bullish engulfing candle pattern.
An example of the bearish engulfing candlestick pattern.
The bearish engulfing candle pattern, as shown above, is based on two candlesticks. The most important candle is the second one which engulfs the range (high to low) of the previous candle. On the second candle buyers first push the market up, breaking the high of the previous candle. However, during the same candle sellers step in and push it all the way down breaking the low of the previous candle and closing lower. This represents a significant shift in momentum to the downside.
An example of the bullish engulfing candlestick pattern.
The bullish engulfing candle pattern, as shown above, is based on two candlesticks. The most important candle is the second one which engulfs the range (high to low) of the previous candle. On the second candle sellers push the market down, breaking the low of the previous candle. However, during the same candle buyers step in and push it all the way back up breaking the high of the previous candle and closing higher. This represents a significant shift in momentum to the upside.
Identifying Price Action Patterns on the FTSE 100 Index Chart
The price chart below is of the weekly timeframe.
In most cases - but not all - the market did indeed continue in the direction of the bullish or bearish engulfing candlestick pattern. Traders can use additional technical tools and analysis to further refine the basic engulfing candlestick pattern. To learn more, simply visit the Admirals Educational library.
What Moves the FTSE 100 Index?
There are a variety of factors that affect the movement of the FTSE 100 index. The main two are the economy and politics.
During periods of economic growth, stock markets typically move higher. This is due to the fact this environment usually translates into higher employment, more consumer spending and more profit for companies. If companies start to make more profits then investors tend to buy more shares in those companies which, in turn, helps to push up the overall stock market.
Therefore, investors pay close attention to economic data such as:
- Inflation reports.
- Employment numbers.
- Central bank policy on interest rates.
- Retail sales and consumer spending figures.
- Currency movements, and more.
You can view a calendar which shows all the UK-related economic news announcements on the Admirals Forex Calendar web page. For some traders, it can be challenging to trade over such volatile economic news announcements. This is why it's important to have access to the right trading products.
Why Trade the FTSE 100 Index with Admirals?
If you learn how to trade the FTSE 100 index with Admirals, you can also:
✅ Trade with a well-established, highly regulated company including regulation from the UK Financial Conduct Authority, the Cyprus Securities and Exchange Commission, the Jordan Securities Commission and others.
✅ Access the fastest and most popular trading platforms from MetaTrader for PC, Mac, Android and iOS operating systems.
✅ Invest in FTSE 100 ETFs and UK stocks through the Invest.MT5 account.
✅ Trade the FTSE 100 index CFD commission-free with competitive spreads and swap fees!
If you're feeling inspired to start trading, or this article has provided some extra insight into your existing trading knowledge, you may be pleased to know that Admirals provides the ability to trade with a free demo trading account.
This means you can trade in a virtual environment until you are ready to go live. A great way to test all of the features and services provided by Admirals while honing in your trading skills.
Admirals is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.