If you have heard of the BRIC countries, then you could possibly be interested in spread betting on what is known as the Nifty 50. BRIC stands for the initials of Brazil, Russia, India, and China, and the financial experts at Goldman Sachs coined this term some years ago, identifying these four countries as emerging economies that will be dominant within a few decades. The Nifty 50 is the stock market index for 50 shares quoted on the National Stock Exchange of India.
Even if you had not heard of that particular acronym, you are probably aware that India is playing an increasing role in the world economic climate, and may have been wondering how you could explore this interest and possibly make some money at the same time. The Nifty 50, sometimes known as the India 50, might be what you are looking for.
The Nifty 50 includes 50 companies across 24 different market sectors, and gives a good representation of the state of the Indian economy. Over half the value of the stock market is included in these 50 companies, and the index is sorted out according to the capitalization of each company. This means that companies with the larger capitalization, or greater value, have a bigger effect on the index. There are a few more rules governing the amount of trading in the company, and how long the company has been at that level, but basically placing the companies in the index is a fairly simple computation.
There is a wide variety in size of company, even within this index. The top eight companies, for instance, account for around half of the value of all 50. Even the top four companies make up about the third of the value of the index. Unless you have been following the Indian economy, it is likely that you have not heard of any of them, as India tends to work behind the scenes in supporting the world’s financial climate.
The Nifty 50 was developed in 1995, and was set at that time to a notional 1000, as is common when indices are established. In the years since then, it has grown to around 5000, an indication of the strength of the Indian economy. As identified in the first paragraph, India is expected to grow rapidly, to the point of overtaking many established economies. When you do your research on the makeup of this index, you may be surprised where the Indian companies are having influence.
Nonetheless, when it comes to spread betting and short-term trading the growth in fundamentals is of peripheral interest to the daily and weekly fluctuations. We are not thinking of investing in India, but in betting, either up or down, on the volatility of the index. As such, you need to establish a spread betting strategy that fits in with the index’s fluctuations, being careful not to set your stop loss too close so that you get stopped out of an otherwise winning situation, but above all making sure that it is close enough to avoid any question of crippling your account with a loss.
Spread Betting the Nifty 50
The Nifty 50 is a volatile index, sometimes also known as the India 50, and thus offers good prospects of profit. The current futures based spread bet is priced at 5382 – 5388. If you think that the index is going to go up, you could place a spread bet, which is called a “long” bet or a “buy” bet, naming your own stake of, say, £6 per point. The minimum stake depends on your spread betting provider. A long bet is placed at the higher price, in this case 5388, and will be closed at the lower price of the then current quotation.
Say that the index goes up to 5451 – 5457, and you decide to take your winnings. The spreadbet closes at 5451, so the number of points that you have gained on the bet is 5451 less 5388, which is 63 points. Your bet was for £6 per point, which means that your total winnings turn out to be £378.
Some of the time you will not have a winning spread bet. The index might have gone down instead of up, to a level of say 5353 – 5359, and you decide to close your bet so that you do not lose any more. Your bet closes at 5353. Now you have to work out how much you have lost. Your initial price was 5388, and your closing price was 5353, a loss of 35 points.
Your initial stake of £6 still applies, so you have to multiply the 35 points lost by £6. That means that your total loss is £210.
If instead of taking a long bet initially, you had decided that the index was going down and placed a “short” or “sell” bet – which would be at the lower price of 5382 – things might have worked out like this. Say your initial stake was £11 per point. You watch the index go down, the way you want it to go, until the quotation is 5 136 – 5142. This time when you close the bet, it must be at the higher price because it was a short bet.
The total number of points that you gained is 5382-5142, which is 240 points. Your initial stake was £11 per point, and you simply multiply this times number of points to find your winnings. 240×11 equals 2640, therefore your profit is £2640.
Once again, you might have picked the wrong direction and the index went up instead of down. In this case, you would be careful to close your spreadbet quickly before the losses are more than you want them to be. Say you let it go until the quotation was 5421 – 5427. The bet closes at 5427.
Now this time you must calculate your spread betting losses. The difference in points is 5427-5382, which is 45 points. Your stake is the same at £11 per point, so you simply multiply the number of points times this amount. That means that your total losses are going to be £495.