Swiss SMI Spreads
One of the lesser-known indices that you can spread bet on is the Swiss SMI, an index based on the 20 largest companies traded on the Swiss stock exchange, which represent 85 to 90% of the value on the exchange. As it is not so well known, you may find less choice for bets with your spread betting provider. IG Index, for example, only offer a futures based bet which they call the Switzerland Blue Chip, and which was quoted at two months out at 5777 – 5787.
Say after studying the charts you thought that the Swiss SMI was going to go up, and decided to place a buy a bet at £3.50 per point. The higher figure of the quoted spread is the price that you buy at, so your bet is placed at 5787.
As this is a futures based bet, you can close the bet at any time up until the expiration date, and you do not have daily interest charges as you would with a rolling daily bet. A few weeks later you decide to close the bet when the quote has gone up to 5963 – 5973.
This was a winning bet, and your profit can be calculated like this: –
The number of points that you have gained is 5963-5787, which is 176.
The amount that you bet per point was £3.50.
Multiplying together the number of points and the bet per point, you get 176 times £3.50, which gives you a profit of £616.
Because no one can predict the markets, you will quite often find that you have a losing bet, and you need to close the bet as soon as you realize that it is not going to make money for you. Say that instead of going up, the index went down and you decided to cut your losses by closing the bet when the spread betting company was quoting 5725 – 5735 for the Swiss SMI.
You can work out how much you lost as follows: –
The buying price, where you opened the bet was 5787, and the selling price where you have to close your bet was 5725. That means you lost a total of 62 points.
Your bet was placed for £3.50 per point, so that is the amount you have to multiply by the point loss. £3.50 times 62 equals £217, your total loss on this bet.
Of course, one of the advantages of spread betting is that you can bet on an index to go down as easily as you can bet on it to go up. Taking the original quote of 5777 – 5787 perhaps you would bet that the index goes down, and place a spread bet of £5 per point at a price of 5777.
Again assume first that you were right, and the index fell to 5636 – 5646. You can close your bet for a point gain of 5777-5646, which is 131. At £5 per point, this would give you a profit of £655.
Once again, you must consider that you could have placed a losing bet. If the index rose instead to 5816 – 5826, and you decided to cut your losses and close the bet, you would have lost 5826-5777, equals 49 points, and that would be a total of £245 that you would finish out of pocket.
How to Spread Bet the Swiss SMI
The Swiss SMI is a key index representing the vast majority of the capitalization in the Swiss stock exchange. It is traditional to think of the Swiss as the bankers of Europe, though this reputation has been somewhat tarnished by the traditional Swiss secrecy being forsaken in the interests of tracking down companies and individuals who would prefer not be tracked down. UBS, one of the major banks in Switzerland, has been cooperating with the US government in this regard.
The SMI was first introduced in 1988 when it had a value of 1500 points. Indices typically “weight” or scale the values of different shares to a convenient number when they are first set up, although they are free to float after this. The companies in the index are reviewed annually, when promotions and relegations are made.
Because the Swiss SMI represents the Swiss (and Liechtenstein) market so completely, it tends to be used as the underlying index for many other financial products, such as ETF’s, options and futures. It is updated in real-time during the trading day, taking information from the Swiss exchange (now called the SIX but formerly the SWX) electronic trading system. This was the world’s first totally automated trading system.
There are a number of well-known companies included in the Swiss SMI, which is called the Switzerland Blue-Chip by some spread betting companies. The companies include Nestlé, Novartis, Roche, UBS, ABB, Swatch, and others that you may recognize. Recently the company Trans-Ocean was added to the SMI. Some say that Trans-Ocean was in some ways responsible for the Gulf of Mexico oil spill, as it was BP’s contractor in the area, and it is at least interesting to note that such a company, dealing with oil rigs at sea, chooses for its own reasons to be listed in a land-locked nation.
It is tempting to think of the Swiss SMI as being a very stable index, just as the Swiss economy is regarded as stable if not staid. However, it has been affected by the global economic crisis significantly, and its value over the past two years has ranged from 4700 to nearly 7000. It touched down to nearly 4000 at the beginning of 2009. This is a reflection of the type of market you can expect when betting on indices. Many people lose money if they bet only on indices, and part of the problem is that of overtrading. It is not necessary to always be in a bet, and you should wait for the right opportunities to present themselves.
Therefore, it’s important to have a trading plan or strategy before choosing your bet, and to have a defined stop loss strategy so that you will not be tempted to hang on to a bet in the hopes that it will turn around, only to see it continue to move away from you. Apply all the best practices that you have learned about spread betting, and you should be able to make a consistent profit from the volatility.
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