The Dutch 25 index, or the Netherlands 25 as it is sometimes known, is one of several European indices that you may wish to spread bet on, once you have become familiar with their constituents. But what is the Dutch 25 index? The Dutch 25 index is one of the national indices on the European stock exchange group Euronext. Euronext was formed in 2000, and has since merged with the New York Stock Exchange. The group is based out of Amsterdam, so has strong ties to the Dutch 25 index, which is also known as the Netherlands 25, or the AEX index (Amsterdam Exchange Index).
The Dutch 25 index was itself created in 1983, and is made up of 25 securities from the Amsterdam Stock Exchange (now Euronext Amsterdam). It was set to a base level of 100 when it was founded, and is currently in the 300s. However there was an adjustment from the Dutch guilder to the euro which reduced the numerical value in 1998 to less than half. The composition is considered every quarter, with major reviews every year. They take the 23 companies that have the highest share turnover, and add two of the next four companies according to various parameters to make up the 25.
The proportion of the index for each company is based on the market capitalization, but with a maximum of 15% contribution to the index, at least when reviewed. The current constituent leaders are Royal Dutch Shell, Unilever, and ING, with nothing else in double figures, but the index includes Heineken breweries and Philips electronics.
Outside of the European Community the Dutch 25 index is relatively unknown, and is often eschewed for the majors, such as the US indices and the FTSE. However, this may mean that you miss an opportunity. Markets come and go, and although the Dutch 25 tends to reflect the world economic picture, including crashing during the dot-com collapse, it has its own unique characteristics that make it a viable alternative when the main markets are going stale. Quite honestly, in the last 10 to 15 years the Netherlands 25 has been one of the worst performing indices, second only to the Iceland 15. In terms of spread betting, whether the index goes up or down is immaterial to whether you can profit from it, so it has given plenty of opportunity to the trader.
If you’re interested in adding spread trading on the Dutch 25 to your repertoire, then it is best to spend a couple of weeks observing the price movement, and forming a feel for the volatility of the index. Applying technical analysis you should be able to determine the sympathy of the market, and form a judgment on whether it is going through a consolidation or in a trend. A trend, whether up or down, is often the preferred type of price movement for spread trading, although frequent range bound trading in a sideways market can also be profitable.
When you have settled on your trading strategy, and done some testing without risking capital, then you may want to “go live” on the Dutch 25 index. It is best to start with a lower stakes while you are getting comfortable with the index, and you should always have an identified stop loss strategy for every bet.
Spread Betting – Dutch 25
Let’s take a spread betting example. The current futures based spread bet is priced at 311.75 – 312.05.
After doing some technical analysis, you may decide that the index is due to go down, and place a down bet, also called a short bet. Your bet will be based on the selling price of 311.75, and you decide to stake £25 per point. Some spread betting companies require you to place the bet on a fraction of a point for this index, so you need to be careful when entering your bet that you are not misunderstood.
Suppose now that the index falls to 290.1 – 290.4, and you decide to cash in your winnings. Here is how you figure out how much you have won.
- The number of points that you have gained is 311.75-290.4
- this is a total of 21.35 points
- you staked £25 per whole point
- which means you won 21.35 times £25
- a total of £533.75.
As this was a futures style bet, there are no other charges or nominal interest to pay.
If the index had not gone the way you anticipated, you must decide to close the bet and cut your losses. 318.14 – 318.45. As it is a short bet, again you must close the bet at the higher, buying, price, which in this case is 318.45.
- You lost 318.45-311.75 points
- that is a total of 6.7 points
- at your stake of £25 per point, you lost a total of £167.50.
As another example, say that you want to bet on the index growing in value. The original quote was 311.75 – 312.05, so you place a long bet at 312.05 at £18 per point.
The index goes up to 335.70 – 336.00, and you close the bet and collect your winnings. Your total point profit is 335.70 less 312.05, which means that you gained 23.65 points. At a stake of £18 per point, your total profit is £425.70.
You will find that even winning traders may bet in the wrong direction as much as half the time. They win because they are good at money management, and at limiting their losses if the bet isn’t working out, so their winning bets have a much greater value than their losing bets. Say that in this case the index goes down, and you are quick to close for a loss when it reaches 306.20 – 306.50.
You have lost, but you have limited your loss. The points you lost are when the index moved from 312.05 to 306.20. That’s 5.85 points. You staked £18 per whole point, so you multiply that out to see how much you lost. 5.85 times £18 means that you have lost a total of £105.30. If you can keep your losses small and secure larger wins, then you will win overall.