How to approach stock trading in the FTSE 100

The London Stock exchange (LSE) is the premier stock exchange in the UK and the largest stock exchange in Europe. If you are interested in trading the stocks of a diverse range of publicly traded companies situated across 60 different countries from all over the world, the LSE provides a great source of market liquidity.

How to approach stock trading in the FTSE 100

Stock trading usually takes place through an exchange like NYSE or LSE but for the more up-to-date investors, trading apps like Robin Hood or even forex trading platforms like the MT4 can be a more efficient alternative. Trading stock in the forex marketplace is extremely favorable for investors since they gain access to major stocks and indices as well, but at a more competitive pricing.

Such an index is the Financial Times Stock Exchange or FTSE 100 which as you may have guessed, tracks the 100 best-performing companies and stocks listed in the LSE – a quite important benchmark if you consider that companies listed in the LSE have a total market capitalization of $2 trillion, nearly 80% of the whole UK stock trading market.

 

A stock trading market with international exposure

Since the Footsie is represented by big brands from a variety of industries like HSBC, Vodafone and GlaxoSmithKline – to name a few – investors trading the index can gain exposure not only in companies in the UK but from their international business as well and in a more cost-effective way to boot. In fact, almost 70% of the companies tracked by the FSE 100 have established revenue streams coming from Europe and the US.

In case of a weaker pound and a strong euro, the revenue the FTSE 100 companies bring from Europe will translate to a higher sterling amount and this is incredibly beneficial for investors in the index.

The FTSE 100 has also been performing remarkably well in 2019 and investors find the inherent volatility in this index quite appealing. After all volatility proves favorable for short-term traders looking to time their entries for a quick profit and the multiple swings in the market are a great boon for this trading approach.

 

FTSE

 

Making predictions

As far as what factors drive the rates of the basket of stocks listed in the FTSE 100, we should note that this is a predominantly natural resource index. Aside from the big financial institutions and retailers, the majority of its weight consists of oil and mining companies like BP, Shell or Anglo American and BHP respectively. 

Therefore, if are looking for indicators that will affect the FTSE 100 direction, you should be looking at the prices of precious metals and crude oil as well as the monitoring the economies where these commodities are in high demand i.e. China.

For example, political tensions over trade wars and tariffs imposed on Chinese exports to the USA, for example, have a negative effect on the performance of the FTSE 100. Paying close attention strengths or weaknesses in the euro will also provide valuable insight in terms of entry signals. Traders who employ a macroeconomic assessment on a global level are more likely to be successful in making predictions regarding future movements.

However, this doesn’t necessarily mean that you should be looking outside the index to identify and predict big movements. Since it’s a market capitalization weighted index, the performance of the largest companies – by market cap – will have the most impact on the price. Positive financials coming from Shell, HSBC and BP for example, which comprise the top companies in the market cap rankings, will provide a strong buy signal for traders in the FTSE 100. Likewise, if these companies are underperforming, any projected gains are likely to slide.

 

Stock trading with leverage

Trading stocks or indices like the FSTE 100, NYSE or NASDAQ through CFDs or Contracts for Difference instead of using a traditional exchange, you can also use leverage to trade larger quantities of stocks with a much lower deposit and therefore magnify your profits.

For example, a $1,000 deposit with 100:1 leverage translates into an ability to trade hundreds of thousands of stocks which may translate in much higher gains. However, a leveraged trade that results to a loss, would mean a loss of your invested capital many times over. This is the reason why leverage can sometimes be considered a double-edged sword, since it cuts both ways, but if you employ a sound risk-management strategy, you will be able to enjoy the benefits of leverage while being protected in the case of unforeseen losses.

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