Euro Stoxx Spread Betting
The Euro Stoxx index, or EU Stocks 50 as it is called by IG Index, is an index that spans many European countries and therefore reflects the economic market in Europe as a whole. In fact the Euro Stoxx 50 reflects the Eurozone as a whole and is based on the largest companies from the 12 members of the single currency, although more than half are from France and Germany. The index is normally traded from 8.00am to 10.00pm Central European Time.
The current quote for a rolling daily spread bet is 2366 – 2370. If you think that Europe is going to suffer further economic decline, you may choose to place a “short” bet, “selling” the index at a price of 2366. Let’s say that you wager £6 per point that the index will decline in value.
As this is a rolling daily bet, there will be a minor interest adjustment each day, but this will not be significant. Say that you wait until the index has declined 2196 – 2200, and then decide to close your bet. As it is a short bet, it will close at the higher number, 2200.
To figure out how much you have won, you calculate it like this –
The total number of points that the index went in your direction is 2366 less 2200. That works out to 166 points. Your bet was at a level of £6 per point, so your winnings will be 166 times £6. The total amount you have won is £996.
Successful traders often find that the market goes the opposite way to their bet, but they minimize their losses by closing the bet quickly. Suppose the Euro Stoxx 50 started to go up after you placed your short bet, you might decide to close the bet for a loss when the value is quoted at 2400 – 2404.
In this case you can calculate your loss in a similar way to above.
The total number of points that the index went against you is 2404 less 2366, that’s 38 points. With your size of bet, the total that you lost is 38 times £6. That’s £228 that you lost.
IG index also quote a futures based bet at a price of 2358 – 2362. Say that you bet this time that the index will go up. Your bet of £3 per point will be placed at 2362. In a few weeks when the index has risen to 2523 – 2527 you decide to close your bet and take your winnings. Your bet will be closed at 2523.
Calculating your winnings, the number of points you have gained is 2523-2362, which is 161. You chose to bet at a level of £3 per point, so your winnings are 161×3, which is £483.
Once again, you may have been on the wrong side of this bet, and find that the index is falling after you place your bet at 2362. You decide to get out when the quote is 2321 – 2325, so your bet is closed at 2321, the selling price.
Working out your losses this time you note that the number of points you lost was 2362-2321, which works out to just 41 points. Your bet was £3 per point, so the total amount that you lost was £123. You have limited your loss, which is important if you are going to spread trade profitably.
How to Spread Bet the Euro Stoxx
The Euro Stoxx index, which is also known as the Euro Stoxx 50 and the EU Stocks 50, is a sort of super index, combining stock values from several different countries in the Eurozone. It was designed by the company Stoxx Ltd, which provides various indices, to give a blue-chip representation of major companies in the EU.
In this respect, it’s important to note that the index is for countries that use the euro, or the European Monetary System, and so doesn’t include Great Britain. In fact, given the European economic difficulties of 2011 there may even be some question whether some countries would like to leave the EMU, which would further complicate the issue. The countries that are involved include Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.
The Euro Stoxx is a free-floating market capitalization index, with 50 major companies participating, but a limit of 10% on any particular company. In actual fact, in its current configuration only Total, the oil company, accounts for as much as 5% of the index. Two telecommunications companies, Nokia and Telefonica, are in the 4% range, and all other companies are less than 4%.
Having said that, many of the companies would be recognized as household names – BASF, Bayer, Daimler, L’Oreal, Philips, Renault, Siemens, Unilever, and Volkswagen to name but a few.
As is common with many indices, it was set to a notional value when it was originated. The value of the EU Stocks 50 in 1991 was set to 1000. The companies are mainly selected by capitalization, with the first 40 on the list being taken directly on that basis. Then any grandfathered components are figured in, with the remaining stocks coming from those ranked between 41 and 60, to get a total of 50 stocks for the index. It’s reviewed annually for the constituent companies, and the weightings are checked every quarter against the market capitalizations.
As such, it is truly a super index of major players in Europe, and certainly been involved with the economic difficulties recently. In the last 52 weeks, the highest level has been more than 50% higher than the low, and it is currently trading a little below the middle of that range.
All of this is good news for spread betters, who will welcome a highly volatile yet tradable index to maximize the possibility of profits. Being able to take a short position on the index with a spread bet is an important asset in the current world economic climate.
Having said that, the volatility must be contained if you are facing a losing position, and it is essential that you have a well defined trading strategy that includes loss mitigation so that you are not facing the decimation of your trading account. The included companies are familiar, but their combination, drawing on different stock markets, may be new to you and therefore you need to take care to observe what the market is telling you before placing your bets.
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