Johannesburg Index Spread Betting: South Africa 40
Among the less well known indices that a spread better may consider trading on is the Johannesburg Index, otherwise known as the South Africa 40. It offers fairly attractive spreads for the futures based bet, with IG Index quoting 28,139 – 28,179 for three months away.
Given the expected rush to gold in the face of further financial instability, you may choose to “go long” or bet on an increase in value of this index, which has a fair share of mining companies. Say you choose to bet £7 per point for the index to go up. The bet will be placed at the “buy” price of 28,179.
Over the coming weeks, you track the index to make sure that you are not losing money, and you’re pleased to see it is going up. When it gets to 29,072 – 29,110, you decide that you want to cash in your bet.
You can calculate the amount of your winnings like this –
You closed your bet at 29,072, and it was opened at 28,179. That means that you gained 893 points on your bet. The amount you bet was £7 per point, so multiplying that by the point gain gives you total winnings of £6251.
Sometimes you will find that your bet goes the wrong way, and then you need to take action to close it quickly before you lose too much. Say in this case instead of going up the index went down and you decided when it had reached a level of 27,826 – 27,866 that you needed to close the bet to cut your losses.
In this case your starting point level was 28,179, and you closed the bet at the selling price of 27,826. That’s a total point loss of 353. Your original bet was for £7 per point, so that still stands. That means that the total you lost was 353 times £7, which is £2471.
One of the advantages of spread betting is that you can bet on an index to go down as easily as betting on one to rise. Perhaps you thought that the index would fall in value when you saw the original quote of 28,139 – 28,179. Then you might place a sell bet at £2 per point, at a level of 28,139.
A little while later you found that your spread betting company was quoting 27,654 – 27,690 for the South Africa 40. You closed your bet for a win.
The amount you profited can be calculated like this –
You opened your “short” bet at a level of 28,139, and closed it as a level of 27,690, the buying price. This is a point change of 449. At your chosen stake of £2 per point, you have profited £898.
Once again, it is also possible that your bet would be in the wrong direction, and the index would have risen. To win at spread betting, you need to keep your losses small, so you may have closed your bet when the index rose to 28,220 – 28,256. In this case you have lost, but you have kept the amount small.
The actual amount you lost is the difference between the selling price, 28,139, and the buying price, 28,256. That is 117 points, which times your stake of £2 per point means you lost £334.
How to Spread Bet the Johannesburg Index
The Johannesburg Stock Exchange (JSE) in South Africa is the leading African exchange, and ranks about 16 in the world markets. It has been around for a long time, and was originally founded because of all the mining and financial companies that were set up with the discovery of gold in the 19th century. It converted from an open traditional stock exchange in the late 20th century, and now is fully modernized with electronic trading.
There are several indices generated by this market, but the one you’re most like to spread trade on is sometimes called the South Africa 40, an index of the top 40 companies out of the hundreds that are listed on the market. The stock exchange works in close collaboration with the London Stock Exchange, particularly with regard to the electronic trading side, and many of the companies are also listed on the FTSE.
The 40 companies are selected as those with the greatest market capitalization, and the top 10 companies in the list account for nearly 70% of the value of the index. It includes such companies as BHP Billington, Anglo American, and Gold Fields in the five mining companies, and the bias towards natural resources is evident.
It is interesting to research a totally different market from the usual indices that are spread bet on, such as the FTSE 100 or the Dow Jones. Despite the differing company sectors, the shares are still being bought by investors who respond to the market fluctuations in similar ways to others around the world, so while the fundamentals may be different and require some learning for long-term investors, it is still possible for traders to use technical analysis with success.
This is one of the keys to spread betting on different markets. The main concern for spread traders is that the market is going to provide enough action in the form of changing prices so that opportunities can be capitalized on. The South Africa 40 is susceptible to the world forces, particularly in the gold and precious metal markets, and that means that the Johannesburg Index can provide a good if different basis for your spread trading.
Although technical analysis will give you the information that you need for timing your bets, it is worthwhile gaining an overall picture of the industries in South Africa so that you can see where the market may be headed in the long-term. It is likely that your spread betting provider will only offer a futures based bet on this index, therefore you want to have some understanding of the underlying forces that move the prices.
If you decide to spread bet on the Johannesburg Index, then you should be particularly careful to “watch your stops” to avoid any big losses. There can be huge swings in the index from day to day, and you should not hesitate to exit a losing bet as soon as it becomes apparent that you’re not going to win.
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