The Euro Stoxx 50, also called the EU Stock 50, spans across the markets of a dozen European countries, those that are part of the European monetary system, the euro. It’s a sort of “Super Index”, as you would be forced to agree if you saw the familiar names of companies included in it. The current quote for a rolling daily spread bet is 2335.5 – 2337.5.
If you believe that Europe is suffering an endemic problem with its constituent country economies, you might want to spread bet that this index will go down. You could place a bet for £6.50 per point for a downward move, and this would be at the “selling” price of 2335.5.
You figured that the index would drop until it reached about 2050, a previous support level, so when you see a quote of 2065 – 2067, you decide to close your bet and take your profit in case the index bounces back up again. As it is a short bet, you close at 2067, the “buying” price.
You can work out how much you won in the following way. Basically all you need to do is multiply together the difference in the points and the stake per point that you bet.
The spreadbet opened at 2335.5, and closed at 2067.
The total number of points you gained is 2335.5-2067, which is 268.5.
For your stake of £6.50 per point, this works out to a total win of £1745.25.
Of course, the index might have gone the other way, in which case you should choose to close your bet to minimize your losses. Say the index went up to 2382.3 – 2384.3. Again, your bet closes at the higher price, this time 2384.3.
The amount you lost is 2384.3-2335.5, which is 48.8 points.
Working that out, for your stake of £6.50 per point you lost £317.20.
Alternatively, you might have decided in the beginning that Europe was coming out of its recession, and that the index would rise. In which case you could place a spread bet for £4.25 per point at a price of 2337.5. If the index did continue to go up, you might close your bet when the quote from your spread betting provider was 2462.1 – 2464.1. You work out your winnings like this.
The total number of points that you gained is 2462.1 less 2337.5, or 124.6 points.
At your stake of £4.25 per point, this amounts to a profit of £529.55.
The Euro Stoxx 50 is a volatile index, as are many of them, and it could be that after you placed your bet the index drops. You should always be prepared for the bet to go against you, and know how much loss you are able to sustain before you have to close the bet. Say you decide to close it when the quote was 2306.8 – 2308.8.
The total number of points that you lost is 2337.5-2306.8, which is 30.7 points. Multiplying by your stake you find that you have a total loss of £130.48.
How to Spread Bet the Euro Stoxx 50: Betting on the EU Stocks 50
The Euro Stoxx 50 is a specially made up index that combines stock values from several countries in the European Union. It is formulated to give an indication of the health of the economy for those countries that use the euro, so the UK is not included. The countries actually contributing to it are France, Germany, Spain, Portugal, Italy, Luxembourg, Austria, and Belgium, along with Finland, Greece, the Netherlands, and the Republic of Ireland.
Although there is limitation on the contribution of any one particular company to the index, with a limit of 10%, none of the companies currently included amount to more than 6%. There are many household names, such as Renault, Volkswagen, and Daimler in the motor industry, Unilever and others. The companies are ranked by market capitalization, otherwise known as market value, which is simply the number of shares multiplied by the price of the share.
It gets a little more complicated after that, as only the top 40 are automatically included, and there is some selection between the remaining 20 to find the final 10 to include in the index. But you can be sure that any company included in the Euro Stoxx 50 is a major contributor to the economy, and usually a familiar name. The name Stoxx is actually the name of the company that compiles the index, just as with the S&P 500, for instance, being compiled by the S&P Company (Standard and Poor’s) in the US. Some spread betting providers prefer to call this index the EU Stocks 50.
As you can imagine, the Euro Stoxx 50 has been subject to a large amount of variation over the past few years. Here is a chart of its value: –
You can see that steady growth from 2003 was wiped out in the global crisis of ‘08, and again towards the end of 2011 Europe is teetering on the brink of financial calamity, with a focus on Greece but a couple of other countries also be in poor financial shape.
The chart shows that the index has been as high as 4500, but is currently just over half that. For those interested in technical analysis, it is worth noting that the low point in ‘09 took advantage of the support level established in 2003, proving the assertion that it is a good idea to look at charts on all timescales, even when short-term trading.
So with massive volatility, and frequent downside thrusts, the Euro Stoxx 50 looks like an excellent candidate for spread betters. All you have to do is make sure that you have your trading strategy clearly worked out, and that you protect your personal downside by having realistic stop loss levels to take you out of the bet if the index runs against you. The fact that many of the companies listed in this index are well-known means that you are able to form a judgment on how well they should perform, and add this information into your strategy when deciding on your bet.