Spread Betting on South Korea’s Kospi index
As the world’s seventh largest exporter and eighth largest importer, according to 2011 statistics from the World Trade Organisation, South Korea is a good barometer for global economic activity. With Korea playing an increasing role in supplying goods to the Western world, it is natural to be interested in the health of the economy and specifically in the performance of their stock market. The acronym for this index is the KOSPI2, or KOSPI 200. KOSPI stands for Korea Composite Stock Price Index, which is the stock market index of all shares traded in South Korea, a total of 700 companies. The 200 has about 70% of the market capitalization of the entire KOSPI as it comprises the 200 largest companies. It is a heavily traded index.
The index was started in 1990, set to a base value of 100, and is calculated by taking the total capitalization of the constituent companies divided by the base market capitalization, and multiplying by 100. It currently runs about 265. It went down to 32 in the financial crisis in Korea in 1998, and first went above 200 in 2007. Unlike many industrialized economies, Korea was well placed to survive the global economic crisis of 2008, and actually posted positive growth for two years. Cars and semiconductors are major industrial products of the economy, and South Korea is known for its shipbuilding, which is about 50% of global ship production.
If you want to spread bet on the Korea 200, then you should study the price chart so that you become familiar with the way that the economy has developed. This has the additional advantage of showing you roughly how much you can expect the daily values to vary, giving you an idea for your stoploss position. The price has been fairly stable in recent times, and steadily growing.
Secondly, you need to experiment with technical indicators on the charts to see which ones work best with this index, and to optimize the values used. Usually the default values that are given to you by the charting software are a good place to start, and you should be wary of optimizing values too much, matching them to the particular historical prices. It is possible to spend a lot of time doing so, and beyond a certain point there is little to be gained.
Instead your time would be better used researching the general health of the economy, which as mentioned has been impressive. In fact the ratings agencies have rated South Korea A1 (Moody’s) and A+ (Fitch and Standard & Poor’s). You can access figures such as the GDP, the rate of inflation, and unemployment figures by searching on the Internet.
You must decide if you want to trade on the basis of technical analysis alone, or whether you want to try and follow the news, making bets in anticipation of economic announcements. This is usually a riskier way to bet, as it can be hard to predict which way the index will go for any particular announcement. In fact, some traders try to avoid being in the market when an announcement is due. Whichever way you decide to make your spread bets, be sure that you have a sound stop loss strategy in place to protect your capital.
Spread Betting on the Korea 200: KOSPI 200
If you want to spread bet on indices, it’s worth looking at the Korea 200 which is an index of the top 200 performing companies listed in South Korea. This index did not suffer as much as many did during the global economic crisis, and is generally considered to be growing healthily. You should apply standard technical analysis techniques to determine when and in which direction to place your spread trades. It is currently priced at 26,598 – 26,628 for a futures style spreadbet on IG Index.
Suppose you believe from your research and analysis that the Korea 200 index will go up. You may consider placing a long bet for £2.50 per point on this index. If you are correct, perhaps you will close the bet when the spread betting quote reaches 27,322 – 27,352. Your long bet is placed at the higher price, and closes at the lower price, therefore your bet was placed at 26,628 and closed at 27,322. That means you gained 694 points. As your bet was for £2.50 per point, you can easily work out that you have made £1735.
Whenever you place a bet, you must allow for the fact that many of your bets will go the wrong way. This is just the way the markets work, no matter how good you may think your research and analysis has been. Suppose that instead of going up the index went down to 26,435 – 26,465, and at that price level you decided that you had to close the bet and cut your losses.
In this case your bet still went on at 26,628, but it closed at 26,435, which means you lost 193 points. Your stake was still £2.50 per point, which means that you lost £482.50 on the bet.
As another example of a spread bet on the Korea 200, suppose you felt that it was due for a retracement and would go down, you could place a short bet at the price of 26,598, staking perhaps £1.50 per point. Assuming it went down as you hoped, you might close this bet when the quote reaches 25,962 – 25,992. Because it is a short bet, it closes at the higher price of 25,992.
To figure out how much you won, again you must first calculate how many points you made. Taking 25,992 away from 26,598 gives you 606 points. You staked a total of £1.50 per point, and you can multiply this up to find that you won £909.
One of the secrets of making a profit in spread betting, or indeed in any sort of financial trading, is to limit your losses. Just think, if you are only right half the time but your winnings are larger than your losses, then you still make a profit. Say the index went up to 26,684 – 26,714, and you decided to close the bet to minimize your losses.
Your bet went on at 26,598, and you closed it at 26,714. The difference, the amount you lost, is 116 points. At £1.50 per point, you would have lost £174.
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