A Comprehensive Guide to Spread Betting the AEX Index
The AEX Index represents the 25 largest companies listed on the Euronext Amsterdam Stock Exchange. It serves as a key barometer of the Dutch economy and is heavily influenced by multinational companies in technology, energy, and finance.
How the AEX Works
- Key Features:
- Market-capitalization weighted, meaning larger companies like Royal Dutch Shell, ASML, and ING Group have more influence.
- Offers exposure to both domestic and international markets.
- Suitable for both short-term and long-term trading due to its consistent volatility.
- Volatility:
- Moderate to high, driven by global market trends, European economic data, and sector-specific developments.
The Dutch market index is named the AEX, after the Amsterdam stock market (now Euronext Amsterdam). Spread betting company IG Index call it the Netherlands 25, or N25, and the current quote for it is 269.5 – 270.1.
If you thought that the index was going up, you could place a buy bet at 270.1, betting that it will go higher than this figure. Unlike most other indices, the AEX spread bet is not based on the integer value of the index, but on a smaller value, because the overall index is numerically much smaller than most. One spread betting provider quotes the bets per 0.05 of the move, and another at 0.1, so you need to check what your provider uses.
Say you place your buy spread bet at £5 per 0.05 price move, and the index goes up to 273.7 – 274.3. You close your bet at 273.7, the selling price, and count up your winnings.
The index has moved up from 270.1 to 273.7, which is 3.6. Your bet was placed at £5 per 0.05 index move, so your gain is 72 times £5, which is £360.
Quite often you will find that the index does not go the way you had anticipated, and then you must close the bet quickly to minimize your loss.
Say the index dropped to a quote of 268.7 – 269.3. This does not sound like a lot, but bear in mind that the spread bet is based on 0.05 steps of the value. You close your bet at the selling price of 268.7, and count up your losses.
The index has moved from 270.1 to a value of 268.7, which is 1.4. You have the same bet of £5 per 0.05 price move, so your loss is 28 times £5, which is £140.
Spread betting makes it easy to bet on an index going down, so say you bet on the Netherlands 25 to fall in value. Taking the original spread, you place a sell bet at 269.5 for £2.50 per 0.05. The index duly falls to a spread quote of 267.85 – 268.45. You take your profit by “buying” at 268.45.
You can look at your profit like this.
The index has moved from 269.5 to 268.45, a total of 1.05. You gain £2.50 for every 0.05, so your winnings are 1.05 divided by 0.05, which is 21, times £2.50. This is £52.50.
Some people find it easier to understand the size of the spread bets by converting the increment of the bet back to a whole integer. In this case, and with this spread betting company, the increment is 0.05. Therefore every integer move in the index is the same as one divided by 0.05 times the stake. One divided by 0.05 is 20, therefore with a spread betting size of £2.50 you are effectively betting 20 times £2.50 for each whole point move in the index. For this bet size, that works out to £50 per unit move.
Key Considerations for Trading the AEX Index
- Understand Market Drivers:
- Sector Dominance: The index is heavily weighted toward technology (ASML), energy (Royal Dutch Shell), and financials (ING Group).
- Global Influence: As many companies are multinationals, global economic and political events can significantly impact the index.
- European Trends: The AEX is influenced by broader European Union policies and market trends.
- Use Risk Management:
- Always set stop-loss orders to prevent significant losses.
- Adjust your stake size according to your risk tolerance and the index’s volatility.
- Leverage Technical Analysis:
- Use indicators like Bollinger Bands, RSI, and moving averages to identify trends and trade opportunities.
- Monitor Currency Impact:
- The Euro (EUR)‘s strength or weakness against other currencies can affect international investments and the index’s performance.
Why Trade the AEX Index?
- Global Exposure: Many companies in the AEX are leaders in their industries, offering exposure to global markets.
- Sector Diversity: Includes technology, energy, financials, and consumer goods, providing a well-rounded economic snapshot.
- Volatility Opportunities: Frequent price swings offer ample trading opportunities for both short-term and long-term traders.
How to Spread Bet the AEX
The AEX index is based in Amsterdam, and is the Dutch stock market index. It is also sometimes referred to as the Netherlands 25 or simply N25, and that is how you will find it on many spread betting quotes. There have been many changes to the index since it was first started in 1983, and at that time it was called the European Options Exchange.
The 25 in the name refers to the fact that there are 25 companies used to make up the index. It is reviewed every quarter to make sure that the composition is still reflecting the market. The way they work it out is a little complicated, but it is worth understanding if you want to be sure what you are spread betting on. The 25 companies are taken as follows.
First, they include the 23 most actively traded companies on the Euronext Amsterdam market. Then they look at the next four companies, and pick the two most actively traded, but giving preference to companies that are already in the index. As to the contribution of each company shares to the index, that they are apportioned according to market capitalization, i.e. the size of the company, but with the restriction that no one company represents more than 15% of the index, at least when they review it. If that company shares grow in value subsequently, then that’s fine until the next review time.
When the index started in 1983 it was set to a nominal 100, as is usual with indices. The numerical value of indices is rarely directly related to stock values. But of course that was based on the old Dutch Guilder which was phased out at the end of 1998, when the index stood at nearly 1200. At start of trading in 1999 this was converted to an index value of 538.
The AEX has not performed well in this century. Although it topped out just over 700 a year or two after conversion, it suffer a lot in the dot-com crash, and as you can see online it is currently in the high 200s. Partly this is because the companies that are included are not generally well known, and certainly not large international companies that can be expected to weather tough times more readily. The exceptions to this are companies such as Heineken, Philips, and Royal Dutch Shell. ING and Unilever are the other major players, and are the only ones to have greater than 10% of the value of the index.
With that background, you can see that the AEX spread bet is relatively unknown, and will require some research in order for you to position yourself as an informed better. Nonetheless, as with all markets the charts can be analyzed with technical analysis, and the market sympathy determined on the basis of probabilities. The fact that it is a lesser used index means that the spreads are relatively large, a disadvantage unless you are aiming for large overall gains when the size of spread becomes less significant. There has been decent volatility for the last few months, with the value fluctuating about 10%, which means it is worth a look for the technical trader.
