Spread Betting the ASX 200
The ASX 200, or Australia 200, is a volatile index that can be both profitable and risky to spread bet. The ASX 200 index itself is the major index on the Australian markets. ASX stands for Australian Stock Exchange and includes over 2,050 publicly listed companies with a combined value of $1.2 trillion which currently ranks as the ninth or tenth largest exchange in the world. The exchange itself opens at what be 10.50pm in the UK and this can make it slightly uncomfortable to trade for some traders. There are a number of different indices compiled from this stock market, including the All Ordinaries Index which used to be considered the gauge of the Australian economy prior to the ASX 200. The All Ordinaries was formed in 1980, and the ASX 200 came along in the year 2000.
From the name you might expect that the ASX 200 is made up from the values of 200 companies. This is nearly true, as the number of companies does hover around 200, at present being 201. The companies are the largest capitalization stocks on the ASX, but are “float adjusted”, which means there is a weighting factor according to the initial floated value. The index also refers only to free float value, that is the value of available shares, excluding those which are held by the government or company executives. The shares on the Australia 200 account for nearly 80% of the total value of the Australian stock market.
Local traders refer to the ASX 200 as the XJO. The All Ordinaries Index (All Ords) or the XAO is a benchmark of the top 500 shares on the Australian market
Some interesting statistics here. The ASX Share Ownership Study (2014) found that only about 33% of Australians owned shares in listed companies. Additionally, of these 33%, 43% are female, which implies that women in Australia are actively interested in the stock market which is quite different to our findings in the USA and Europe. Very few Australians are interested in trading overseas shares.
Research by Credit Suisse in 2010 concluded that after including the technology bubble and the global financial crisis, Australia has had one of the best performing stock markets in the world from 1900 to 2009.
According to Vanguard Investments, from 1980 to 2010, $10,000 would be worth…
* $234,319 in Australian shares, a return of 11.1% per annum.
* $145,040 in cash, equating to a return of 9.3% per annum
* $36,383 in the Consumer Price Index (CPI), a return of 4.4% per annum.
Companies that are included on the ASX 200 must have a minimum liquidity that is a trading volume of at least 0.025% of the total for all securities on the ASX. The other restriction is that no company may account for more than 15% of the index. After applying these restrictions, the Australia 200 index finishes up a good representation of the economy on the other side of the world. Some of the bigger constituents include mining giants BHP Billiton (BLT) and Rio Tinto (RIO) which have a big say on the performance of the ASX 200 index. [hint: keep an eye on commodity prices when trading the ASX 200].
The economy on this side of the world has some interesting facts, compared to the traditional Western economies. For instance, the unemployment rate is significantly lower at 5.2%, and the national interest rate is 4.75% as opposed to the lower rates being tried to stimulate the economy in the West. Altogether you can expect that this index will, while inevitably being connected to the rest the world, behave in its own way and requires some study to try and anticipate its movements.
The other reason that you may be interested in the Australia 200 is that the market trades at a totally different time from the UK and US markets. In fact, the Australian Stock Exchange (ASX) opens at 10.50pm in the UK. This may fit in better with the time that you have available for spread betting, as it is always worth betting when the market is live, even if your spread betting company offers out of hours quotations. Other than that, Australia itself is very rich in natural resources and is China’s biggest trading partner accounting for about half of its exports. As such it pays to keep a close eyes on chinese economic and production data as well as any Japanese monetary policy announcements.
Normally, the margin to open a position you will need to put initial margin of around 1% of the effective exposure. To spread bet on the ASX200 you will need a robust trading plan that protects your betting capital. Remembering how your funds are leveraged by spread betting, you will see that it is easy with a volatile index such as this one to lose your account and more, if you do not have a defined strategy in place. This should not put you off betting on the Australia 200, as the volatility can also equate to large profits, and that is presumably what you are betting for in the first place. Just be careful to perform your technical analysis and to cut your losses quickly on the inevitable losing bets.
Spread Betting – ASX 200
Traditionally, this index is traded via the futures market and is called the SPI 200 contract. The ASX 200, sometimes known as the Australia 200, is a lively index that can be provide ample spread betting opportunities. The Australian index can practically be traded round-the-clock thanks to the futures contracts with margins starting at about 1% of the market exposure.
At present the rolling daily bet quotation is 4219.0 – 4222.0. If you see signs that you believe indicate the index is going up, you may want to place a £4 up bet at 4222.0.
You hang on for a few days, watching the index steadily climb, and finally decide to close your bet when it reaches 4312.6 – 4315.6. The bet closes at the value of 4312.6. The amount you have won can be worked out from the point difference and the amount of the stake, like this: –
The point difference that you have gained is 4312.6 less 4222.0. This is 90.6 points. At a bet level of £4, this means your winnings are £362.40.
This index is volatile, and could have gone down instead of up after you placed your initial bet. If it did, you would have lost money. Say you decided to close your bet when it reached 4183.7 – 4186.7. You work out how much you lost in the same way, multiplying the point difference and the stake: –
The point difference that you have lost is 4222.0 – 4183.7. That works out to 38.3 points. For your given stake, you lose a total of £153.20.
With a major index such as the Australia 200, your spread betting provider may give you further choices, such as future based bets which you can hold without charge and do not have to be closed for a couple of months. IG Index spread betting offers the Australia 200 future at 4215 – 4221. You can easily bet on the index going down, taking a short position at 4215 for £6 per point.
Assuming that the index does not go too far against you, you can hang on to this position and give it time to maximize your gain. Let’s say the index drops to 4065 – 4071, and you decide to take your profit.
The amount you have won is again worked out from multiplying the point difference and the stake. As you took a short position, “selling” at 4215, your bet closes at the “buying” price of 4071.
The total number of points that you have gained is 4215 less 4071. That amounts to 144 points.
Your stake was £6 per point.
Your gain is 144 times £6.
Your total gain is £864.
Once again, no one can predict the movement of financial securities with 100% accuracy, and the index could have moved against you, going up. Even if it later came down, if it went up sufficiently that you were in danger of losing too much money you would be sensible to close your bet and cut your losses. Say it went up to 4252 – 4258, and you closed your bet at 4258.
The number of points that you have lost this time is 4258 less 4215, which is 43 points.
That means the amount you lost was 43 times £6, which is £258.
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