How to Spread Bet the Mdax
Everyone involved in trading has probably heard of the DAX, the major index for the German stock market. DAX is actually an abbreviation for Deutscher Aktienindex, literally “German stock index”. MDAX is simply a bunch of mid-cap issues that rank below the companies in the DAX. The main DAX index includes the 30 largest and most actively traded companies in the German stock exchange, based in Frankfurt and is is compiled, computed and published by the Deutsche Boerse. The MDAX covers another 50 companies, but not necessarily the next largest. It excludes technology companies and concentrates on the traditional market sectors. Technology is covered with another index, somewhat boringly called the TecDAX.
The MDAX was started with a base value of 1000 in 1987, and now is over 8000. Given the volatility of the world markets in recent months, you may not be surprised to learn that the index has been down in the 7Ks, and over 10K in the last year – the highest price was over 40% higher than the lowest, just in the last year.
Some people prefer to invest in mid-cap companies. The theory is that small and mid-cap companies are typically less researched than the large ones, and may give you an opportunity to invest in something that has not been recognized yet as a market leader. Small caps have the disadvantage that many of them fail before getting established, leaving the mid-caps as the choice – large enough to be relatively stable, but not so big that they have no exciting opportunities left.
Whatever the merits of that theory, it doesn’t matter so much for the spread better whether the index dose well in comparison to the DAX, or not. What is important is that the index has a suitable degree of volatility, so that there are opportunities for profit either up or down, and that the index responds to conventional technical analysis so that these opportunities can be identified. It is clear from the figures for the last year that the index has been exhibiting a lot of volatility, so although it is not such a mainstream choice for spread betting as some others, it is worth looking at.
As indices are typically volatile, you must be sure to have a researched trading plan in place before putting on any spread bets. In particular, you must concentrate on cutting your losses for the bets that, inevitably, don’t go in the right direction. However hard you research the MDAX, you can be certain that not all your picks will be profitable, and one of the keys to winning at spread betting is to make sure that you do not have any disastrous losses.
The other side of spread betting is that you must make the most of your profitable bets. That means that you do not rush to close a bet just because it comes into profit, provided it is still showing signs of going in the right direction. Your profit is a multiple of the number of points you gain, so the more points you gain the better off you are.
Mdax Spread Betting
The MDAX is the German index for midsize companies, and can be spread bet in various ways. For instance, one spread betting company lists futures based bets for three, six, and nine months out.
Let’s assume that in the short term you believe that the index will grow. The three-month futures are listed at 8317 – 8375, so you place a buy bet for £4 per point at 8375.
In a couple of months the index has grown to a quote of 8546 – 8596, and you decide to close your bet for a profit. The way you can work out your winnings is as follows: –
- the total number of points you have gained is from the buy price of 8375 to the sell price of 8546
- 8546-8375 equals 171 points
- your bet was for £4 per point gained
- your winnings are 171 times £4
- that’s a total profit of £684
When you are involved in any kind of financial trading, there are times when the market will not go in the direction that you had hoped. Assume that the index instead of increasing actually fell, and you had to cut your losses and close your bet when the quote was 8275 – 8325. Your spread betting provider will work out your losses like this: –
- your bet was placed at the buy price of 8375, and closed at the sell price of 8275
- the difference between the prices is 100 points
- your bet was still for £4 per point
- that means you lost £4 times 100 points
- your total loss is £400
Now, say you are more interested in the long-term future of the index, so you wanted to place a bet on the MDAX on the longest term, nine months. The current quotation for that is 8370 – 8472. This is a large spread between the buying and selling prices of 102 points, which means that you only really want to take this on if you think the index is going to move a long way, so that it covers the spread and gives you a good return. The spread is larger for the longer dated bets because it includes daily interest charges and increased risk for the spread betting company.
Let’s say that you think the index will go down over the long-term, and place a bet of £2 per point in that direction. As it is a sell bet, your starting number is 8370.
Time goes by, economies continue to be stressed, and the index drops to 7862 – 7923. Because it’s closer to the maturity date, the distance between the prices, the spread, has reduced a little. You close your bet at 7923 and count your profit.
- You made 8370-7923 points
- that’s 347 points
- your bet was for £2 per point
- you won 347 times £2, equals £694
But say the index did not move much, and your bet closed after nine months when the quotation was 8360 – 8390. Even though the index did not move much, and if anything went down overall, because of the spread you have still lost.
You open the bet at 8370, and closed the bet at 8390. You lost 20 points, which at £2 per point means you lose £40.
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