The current quote for the Hang Seng Index on a daily rolling spread bet is 19,414.3 – 19,454.3. With some spread betting companies, it is also known as the Hong Kong HS42 index. It has been very active recently, and you decide to place a short bet, that is a bet that it will go down, for £1.50 per point. As it is a short bet, your starting value is 19,414.3.
Let’s suppose that the index does go down, and that you decide when it reaches 17,682.1 – 17,722.1 that you will close the bet and take your profits. The way you work out your profit is by calculating the number of points you have gained and multiplying that times your stake per point.
As it was a short bet, the bet closes at the buying price of 17,722.1. That means that your total point difference is 19,414.3 less 17,722.1, which is 1692.2 points. Your stake was £1.50 per point, so if you multiply that times the point difference you find you have won £2538.30.
You already know that this is a volatile index, so if it goes in the wrong direction you will be ready to close your bet quickly, and minimize any losses. Say on the bet above the index went up instead of down, and you closed your bet when it hits 19,582.6 – 19,622.6. Your bet closes at 19,622.6.
Here’s how you work out how much you have lost. The difference in points is 19,622.6 less 19,414.3, which is 208.3 points. The stake remains the same, so the amount you have lost is 208.3 times £1.50, which calculates out to £312.45.
IG Index also offers a futures based spread bet on the Hong Kong HS42, and the current quote is 19,349.4 – 19,399.4. With a futures bet, there is no adjustment for interest if you hold it more than one day, and you can keep it until the maturity date, or alternatively cash it in after a day or two, if you find you are winning that quickly.
This time you decide to bet on the index going up, staking £3.50 per point at the buying price of 19,399.4. Assuming all goes well and the index increases, then you may decide to cash in your bet when it hits 19,826.7 – 19,871.7. The long bet closes at the lower price of 19,826.7.
Let’s see how much you have won this time. The number of points that you gained is the difference between the opening and closing prices, that is 19,826.7 less 19,399.4, which works out to be 427.3 points. Your stake this time was £3.50 per point, so you can multiply that out to find your total winnings are £1495.55.
Once again, this index is volatile and can easily go in the wrong direction for your bet. Let’s say it falls to 19,286.3 – 19,331.3, and you decide to accept your losses before they get any larger.
The number of points that you have lost is 19,399.4 less 19,286.3, that’s 113.1 points. At the given stake, the total amount you have lost is £395.85.
How to Spread Bet the Hang Seng
The Hang Seng is the index of the Hong Kong stock exchange. There are various forms of this index, but usually Hang Seng simply applies to the market capitalization based index of the top 40 to 50 companies. The reason this number is vague is that Hang Seng Indexes Company, a subsidiary of the original Hang Seng Bank, is on a mission to increase the number of companies up to 50 in order to better reflect the market. At the time of writing there are 46 companies, but IG Index, the spread betting company, still identifies this index as the Hong Kong HS 42.
The other major Hang Seng index is known as the Composite Index, and this contains nearly 400 companies, and covers about 95% of the value on the main stock market. As is customary with index companies, Hang Seng have also generated other forms of index for different market sectors, size of companies, etc.
This chart of the last few years, with the Hang Seng in blue, serves to illustrate the volatility that you can expect. In fact, since this chart was produced a month ago the Hang Seng has rallied to a price of around 19,600 – this chart shows a level of around 17,500 at the right-hand edge.
The index has been in existence for more than 50 years, and started as the notional value of 100. Its all time high was nearly 32,000 points, which was reached in 2007 and can be seen on the chart above. A large part of the index is composed of financial companies, with energy, telecommunications, and construction ranking next, but aggregated together not amounting to as much as the financial sector. The Hong Kong market is also affected by the proximity to the China mainland, making this an index with opportunities, but not for the fainthearted.
With that said, the obvious advice is that you should take care to watch what types of movement the index is doing for a few weeks, and particularly the volatility including any gap opens so that you are prepared to size your bets appropriately, and not risk too much. With an active index such as this, usually careful and detailed technical analysis will enable you to stay ahead of the market sentiment, at least sufficiently to win the majority of your bets.
Given the number of gap opens that this index has seen, you may want to consider using a Guaranteed Stop Loss order, even though it will usually cost a little more in the spread. The need for this would depend on how you regard the risk, and what proportion of your account you intend spread betting on this financial instrument. Whatever else you do, you must make sure that your trading plan takes into account the volatility and requires position sizing that will protect your capital in the event of an adverse run of bets. The Hang Seng may take some getting used to, but offers some excellent possibilities for decent profits.