Mastering Spread Betting on the S&P 500: A Trader's Guide

Why spread bet on the S&P 500? Well for one it is less volatile than the Dow Jones. Even spread betting the S&P at £1pp you can have a stop say about 10 points (lose a tenner max – no problems) but potentially catch a bottom, or a wave, and grab circa 10 points profit over two trading sessions. It is also a more diversified index than the Dow Jones Industrial Average and gives a better picture of the overall health of the USA economy than its bigger Dow counterpart.

Should you Trade the Dow Jones or S&P 500? 🔑

But what is the S&P 500 Index?

Standard and Poor’s is a financial company that functions as a ratings agency, but is chiefly known for producing the S&P 500, an index of 500 US companies. The index is just over a half century old, which is much younger than the established Dow Jones Industrial Average (DJIA), but it is still a major US index that some argue represents the US economy more completely because of its inclusion of so many companies, as opposed to the Dow’s 30 companies.

In actual fact, both of these indices give a good account of the US outlook, and pretty much move in lockstep as you can see from the following chart, with the Dow in blue and the S&P in black and red: –

The US markets are fairly volatile which is evident in the last year alone of this chart where the value of the Standard & Poor’s has varied between 1100 and 1400 (the Dow is scaled to fit, its actual value is of course well over 11,000).

As with the Dow, there are a number of events that you can watch for that will possibly impact the S&P 500. Market values are all about public confidence, and this is affected by Presidential pronouncements, Treasury Secretary speeches and the Federal Reserve Board (Feds) regular meetings.

The Federal Open Market Committee of the Feds meets around every six weeks, and the US markets speculate in advance whether or not they will change the Fed Funds rate, which acts as a bellwether for all other interest rates such as mortgage repayments and return on a U.S. Treasury bonds. As a general rule, an increase in interest rate is not good for the stock market because it makes consumers less likely to buy stocks and increases the cost of doing business. However, if the increase is expected then the impact may already be factored into share prices before the announcement.

Another event which tends to affect the market values is the US jobless claims figure, a weekly report on the number of people who have filed for unemployment benefits. While a large number generally depresses the market, in better times a small number can also be detrimental, as it could indicate that companies will find it hard to hire new workers and may have to pay existing workers more.

And while that deals with the number of people looking for jobs, the US non-farm payrolls figure is also significant, as it indicates the basic hourly wages for major industries and how many hours a week are worked. Again, this gives an excellent indication of the outlook for the US economy. These numbers impact directly on the ability of consumers to spend on companies’ products, and therefore their profitability. On the other hand, the non-farm payrolls will help to identify wage trends, which show the possibility of wage inflation; wage inflation can lead to a raising of the interest rates, resulting in a bearish move of the market.

Tips for Mastering Spread Betting on the S&P 500: A Trader’s Guide

Understand the Index Composition
- The S&P 500 includes the largest 500 publicly traded companies in the U.S., spanning various sectors. Familiarize yourself with its sector breakdown, with particular attention to technology, healthcare, and financials, which often drive index movements.
Track Economic Indicators
- Key indicators like GDP growth, unemployment rates, interest rates, and inflation heavily influence the S&P 500. Monitor Federal Reserve announcements and economic reports for clues about market direction.
Use Broad Market Trends
- The S&P 500 tends to reflect the overall health of the U.S. economy. Understanding the macroeconomic environment can give you a competitive edge in predicting long-term trends.
Focus on Technical Levels
- Utilize support and resistance levels, Fibonacci retracements, and trendlines to identify strategic entry and exit points. These tools are particularly useful for spread betting in a broad market index like the S&P 500.
Stay Aware of Earnings Seasons
- Quarterly earnings reports from large-cap companies can significantly impact the S&P 500. Pay attention to earnings announcements, as they can create volatility and trading opportunities.
Consider Market Sentiment
- Gauge investor sentiment using tools like the VIX (Volatility Index) or market breadth indicators. Bullish or bearish sentiment often provides clues about upcoming market moves.
Set Realistic Stop-Loss Levels
- The S&P 500 is generally less volatile than the Nasdaq 100, but it still requires disciplined risk management. Set stop-loss levels to protect against unexpected market swings.
Use a Longer Time Horizon
- Spread betting the S&P 500 can reward traders who adopt a longer-term perspective, focusing on multi-day or multi-week trends rather than short-term price fluctuations.
Diversify with Sector Insights
- The S&P 500 spans various sectors, each with unique drivers. Use sector-specific ETFs or individual stock performance as indicators to refine your bets.
Watch for Key Market Openings and Closures
- The S&P 500 often sees increased volatility at the market open and close. Time your trades strategically during these periods to maximize opportunities.
Practice Patience and Discipline
- Avoid overtrading or chasing the market. Stick to your trading plan, manage your emotions, and ensure your positions align with your broader strategy.

Spread Betting the S&P 500: How to Spread Bet the S&P 500 Index

The S&P 500 is one of the US indices. S&P stands for Standard and Poor’s, which is also the ratings agency which downgraded the credit rating of the USA recently. The S&P includes 500 American companies in its index.

Looking at the spread betting company’s website, you might see a quote of 1191.67 – 1192.17 for this index, sometimes also called the US SPX 500. This means you can buy a bet at 1192.17 for the price to rise. Say you bet £10 per point that the market would rise. The spread might move to 1220.65 – 1221.15, at that time you decide to take your profit. You close your bet at 1220.65.

You can see how much you profited from the following calculation –

the index went up from 1192.17 to 1220.65
that’s an increase of 28.48
your bet was £10 per point
so your profit is 28.48 x £10
for a total profit of £284.80

if instead you had chosen the wrong direction and the S&P dropped, you might choose to close your bet and limit your losses when the spread betting company was quoting 1175.26 – 1175.76. Then you could calculate how much you lost on this bet in the following way –

The S&P 500 dropped from 1192.17 to 1175.26
The loss is 16.91
the total loss is 16.91 times £10
which is £169.10

Perhaps over the long-term you decide that the S&P will fall, and you decide to take out a longer term bet for a drop in the index. The US SPX 500 is quoted by your spread betting provider at 1177.13 – 1178.13 for March 2012. There are two things to note here. Your spread betting company has also decided that the index will fall, by providing lower prices. And secondly, as is typical the spread offered is larger for a futures based bet.

You place a bet for £20 per point for a drop in value from a price of 1177.13. You don’t have to wait until March before making a profit. If you see that the price has changed to 1143.63 – 1144.63 a little while later, you can decide to close the bet then and make your money. You close the bet at 1144.63.

You can now figure out your profit like this –

the number of points that the S&P has dropped is 1177.13-1144.63
that gives you a gain of 32.5 points
as the bet was for £20 per point, you gain 32.5 times £20 which is £650.

Suppose that the bet did not go your way, but you feared it was going to get worse and closed the bet when your spread betting provider was quoting 1187.24 – 1188.24. As you sold to open the bet, you buy to close the bet which is at the price of 1188.24.

Here’s how you find out your loss –