How to Spread Bet the CAC
The CAC 40 index is the main benchmark index for the Paris stock exchange in France. It can also be called the France 40, or simply CAC. As the name suggests, the index is made up from 40 different stocks, chosen out of the top 100 in market capitalization and activity on the French Stock Exchange, which is sometimes also referred to as Euronext Paris (Euronext is the pan-European stock exchange association, which includes several European countries).
The CAC 40 index was started in 1987, when it had a base value of 1000. CAC stands for “Cotation Assistee en Continuo”, which literally means “continuous assisted quotation”.
The index is a good representation of the state of the French economy. It is supervised by an Index Steering Committee, called a “Conseil Scientifique” in French, which has been tasked with managing the companies chosen and making sure they give an accurate depiction of the market. The use of an independent committee guarantees excellence and transparency.
In common with the rest of the world, the French economy has been hit hard in recent years, and here is a recent chart of the CAC price: –
This chart shows weekly candles for the last five years.
The CAC contains companies that may not be very familiar to the reader. Perhaps the most well-known include BNP Paribas, Renault, L’Oreal and Total. In contrast to some other markets, the French economy is reasonably self-contained, and the degree of international trade is less. However, as part of the European Union, the fate of France is inextricably woven with the other countries of the Union, including at this point Greece which is causing some concern. Without doubt, Germany is seen as the financial powerhouse of the EU, but inevitably the whole of Europe must be affected by each member’s economy. In fact, both France’s CAC-40 and Germany’s Dax index are normally strongly correlated to each other although the Dax is the more popular instrument amongst traders mainly because of its high volatility.
So if you are interested in spread betting the CAC, the fundamentals apply. You must research or follow it for a time to get a feel for the volatility and the forces that move it. The weekly and monthly volatilities are typically around 40 points, which makes it generally one of the less variable of the indices that you can bet on. As you can see from the weekly chart above, there are occasional weeks which have seen 400 point shifts, so as always you must plan for realistic stop loss positions that will protect you from a large loss in principal.
For instance if you are of the opinion that the CAC 40 index will come under pressure in the coming months, following the local elections in France and the newly-elected President Francois Hollande and his stance on wanting to renogotiate the European Union fiscal agreement with German Chancellor Angela Merkel, you could take a short position and sell the France 40 index. Of course you could also go long (buy) if you are of the opposite opinion. If you were right in your prediction and prices were to swing in the direction you had expected, you would make a gain for every point that the market moves in the direction of your trade. Conversely, you incur a loss for every point the market moves in the opposite direction.
Another advantage for the UK-based daily trader looking for an alternative to betting on the major indices is that, as a European index, the France 40 market is open and trading during the day, without needing to allow for time shifts as with the US and Asian markets. While your spread betting provider may offer 24 hour trading on markets, when the markets are closed the spread is typically increased by the provider, just to insure the spread betting company against losing on index moves that cannot be easily covered on the market.
“The CAC 40 is trading at 3,000 points. A decade ago, it was trading at 7,000 pts. Investors are getting sick of ‘buy and hold’ strategies and long-only funds charging all sorts of fees,”
CAC 40 Spread Betting
The CAC 40 is the French stock market index which uses the 40 top companies, weighted by market cap, which are traded on the Paris stock exchange to give an index of the health of the French economy. Looking at the spread betting company’s website, the current quote for a rolling daily bet is 3019 – 3021.
Even though it is on the French market, spread betting allows you to place your trade in pounds sterling, betting an amount per point of movement. If you think that the CAC is going up, you will place a buy bet at 3021. For instance, you may choose to bet £3 per point.
If for example the index rose to 3122 – 3124, then you could close your bet and take your profit. You close by selling at 3122.
The number of points that you have gained is 3122-3021, which is 101 points. You bet a total of £3 per point, so your gain is £303.
Of course, markets can go down as well as up, and if you are spread betting effectively you will have a price in mind when you place the bet that represents the amount that the bet would have to turn against you for you to close it for a loss. Say this was when the spread betting quote reached 2980 – 2982, and then you sold your bet to close it at 2980.
The way you calculate your loss is to multiply the number of points between those two numbers times the amount you staked per point.
The number of points you lost is 3021-2980, which equals 41 points.
As you bet £3 per point, the total you have lost is £123.
One of the advantages of spread betting is that you can bet on a price to fall as easily as to rise. If, for example, you had decided in the first place that the index was going to go down, you would have placed a sell bet at 3019, say for £5 per point.
Assume in this case you are right, and the index continued to fall until it reached a quote of 2876 – 2878, when you decided to take your profit. You close your bet at the “buy” price of 2878, and calculate your profit.
The total points you have gained, remembering that you bet on the index going down, is 3019-2878, which works out to 141 points.
With a bet of £5 per point, you have a profit of £705.
Once again, the CAC 40 index might not have gone in the direction that you selected. You may have watched as the price quoted by your spread betting company rose to 3043 – 3045, and then decided to cut your losses and close the bet.
You close your bet at the “buy” price again, 3045, giving up the value of the spread to your spread betting broker. The index has risen by 3045-3019, 26 points, which goes against you at £5 per point. In this case, you have lost £130 on the France 40.
Join the discussion