By lipigesic
The number on the screen is a calculation somebody maintains. Every product sold on it is an agreement about that calculation, and the agreements differ far more than the screens do.
An index is a sum, and somebody maintains it
The FTSE 100 is the answer to a formula. Constituent prices summed under one published rule, then divided by a figure that gets adjusted whenever a company issues stock or leaves the list, so housekeeping never registers as a market move. A committee writes those rules and reviews the membership. What crosses your screen is the latest output of that arithmetic.
None of which is deliverable. You can hold the hundred companies in the right proportions, or a fund that does it for you, but the calculation cannot change hands. A position on an index is therefore an agreement about where that arithmetic goes next, signed with a firm willing to take the other end. Membership changes pass over the position almost silently, because the divisor absorbs them.
The word cash is doing unusual work here
Platforms label the everyday index product cash, spot or daily, borrowing vocabulary from markets where cash means the thing itself, delivered now. Nothing is delivered. The word exists only to separate this contract from one referencing a dated future. Underneath sits a timing oddity. The index is only computed while its constituents trade, so once London shuts there is no index to quote. The evening price is the firm’s own construction, usually run off the listed future. The product named after the cash market spends much of each weekday quoting a number built from the futures market, then hands back at the open.
Five contracts behind one piece of shorthand
Set the ordinary index range side by side. A daily funded contract for difference on the cash reference. An undated contract referencing a listed future, carry folded into the quote. A dated contract with a printed expiry. The spread bet versions of those, priced in pounds a point rather than a count of contracts. And the exchange-listed future itself.
What separates them are the two columns nobody reads: which number the contract references, and what becomes of it if you leave it alone. On some, leaving it alone is a decision you pay for nightly and may repeat indefinitely. On others it has a date attached, fixed before you arrived.
| What the platform calls it | The number it references | How time reaches the account | If you never close it |
| Cash, spot or daily index | The index while London trades, a derived quote when it does not | A financing line every night, plus dividend adjustments | It runs on until you or the margin close it |
| Undated, futures referenced | A listed future the firm has picked as its reference | An adjustment inside the quote, rarely itemised | It carries on, and which contract sits under it changes without you |
| Dated or quarterly index | One named futures contract with one expiry | Priced in on the day you deal, then nothing further | It expires on the printed date at a settlement level |
| Index spread bet, daily funded | As row one, priced in pounds a point | Nightly funding on the exposure the stake implies | As row one, in a different unit |
| Exchange-listed index future | Itself, since the contract is the reference | The gap from the index level, which closes toward expiry | Cash settlement on the expiry day |
Five arrangements sold on the same index. The labels are the platforms’ own, and one firm’s wording for the top row is another firm’s for the second.
The reference has one side and every product has two
A published index level is a single figure. It arrives with no bid and no offer attached, because nothing in the calculation contemplates anybody buying it, and it runs on the last prices at which the constituents happened to trade rather than on anything you could deal at. That lone number is what every arrangement in the table above points to.
Each firm then builds a two-sided market around it, and the two sides are the firm’s work rather than the market’s. Two providers pointing at the same reference in the same second can show different widths, sitting differently around the middle, and neither is misquoting anything.
The centre belongs to the index committee and the distance either side belongs to whoever wrote the pricing engine, which is why a spread on an index cannot be checked against an underlying the way a spread on a share can.
Twenty to one is a classification before it is a limit
The FCA’s retail leverage rules put major indices at 20:1 and minor indices at 10:1. The multiple is the part that gets quoted; the sorting is the part that matters. Somebody has decided which indices belong to which family, and a platform’s list presents both in identical rows in identical styling.
The rung travels with the index, not with the product
The classification also travels with the index rather than with the product. Whichever of the five arrangements you deal through, the same reference draws the same rung, so the margin requirement is the one place where these five are treated as interchangeable. Everything else about them differs in ways that decide what a year of holding comes to, and the single figure that looks most like a comparison between them is the one figure that declines to distinguish them at all.
The base of the overnight charge moves with the index
Financing on a leveraged index position is worked out on exposure, meaning the level multiplied by whatever the contract makes a point worth. The level is not a constant. Open around 8,000, carry the position while the index works up towards 8,400, and each night is financed on a larger base, although nobody dealt and the position never grew in the sense a trader means.
One consequence is worth carrying out of that. A financing figure quoted per contract per night is only true at the level it was quoted at, so two accounts opened in the same week at the same stake stop being strictly comparable once the index has travelled a couple of per cent.
The effect is small and it compounds, and it reaches no published comparison of anything, because the quantity being financed is settled by a committee’s arithmetic rather than by anything either party to the contract did.
Trading the FTSE names at least three different bills
Which is why the phrase does so little work. Somebody who says they trade the FTSE has told you nothing about what a night costs them. A financing line, an adjustment folded into a quote and carry bought once in the price are three separate arrangements with time, and no amount of care about spreads reconciles them. A table listing one point beside a broker’s name has already picked one, without saying so.
There is a limit here that is particular to indices. An index financing charge accrues on a base the index committee’s arithmetic sets, so a statement line records a cost dated to a level as much as to a day.
A spread can be re-quoted from a screen months later and checked. A financing entry cannot, because the level it was struck against has gone. That makes index carry the least re-testable figure in any comparison, including one gathered the expensive way by The Investors Centre, which opens and funds live accounts with its own money to test UK trading platforms rather than compiling rankings from providers’ published fee schedules. Naming the contract beside every figure is the repair, and most index pages name the platform first.
What the ticket would have to tell you
The remedy is dull and takes a minute. Before dealing, read the instrument’s full name instead of the four letters at the top of the panel, then look for two fields: an expiry date, and an overnight financing rate quoted for that contract. Those two answers place it in one of the rows above. A product that buries them has answered a different question.
Five versions, and the platform picks the default
A view on an index is a view on a hundred companies at once, which is most of the appeal, since no single set of results overturns it. The apparatus for holding that view comes in five versions and the platform supplies the default, so most people end up in whichever arrangement sat at the top of the instrument list. Learning the name of the one you are in takes a minute and stays useful for as long as you deal in indices, which is a poor return only if you never hold anything overnight.