Many investors tend to buy shares outright or trade the FTSE 100 in the long term, which is a strategy known as position trading. This is because the index is known for being slightly more stable, in comparison with other more volatile assets, and these types of stocks can generally provide profitable returns over a longer period of time. However, some traders prefer to stick with short-term strategies, such as day trading. A day trading strategy involves traders dipping in and out of the market to take advantage of very small but frequent price fluctuations, and closing out their positions at the end of each day to make a profit.
As the FTSE consists of a large number of stocks, there may be less internal volatility. For example, if the performance of one stock declines, there are still 99 other stocks to help to offset risk. Therefore, traders can read and interpret price action on a price chart, and day trading can be a rewarding strategy for experienced traders who are familiar with the FTSE 100. However, the FTSE can still fluctuate rapidly in price due to external events, such as the political and economic instability of the country. In turn, this could have an effect on the entire index’s value, regardless of how many assets there are to offset the decline of a large constituent’s performance.