You may be interested in spread betting the CAC 40, the major index for France which gives an indication of the French economy. The companies on it are carefully selected and weighted to reflect the economy as a whole. The current price from a spread betting provider is 3174.5 – 3176.5 for a daily rolling bet.
If you decide that the index is going down, you can place a short bet at the lower price of 3174.5. Say that you stake £5 per point. If you are right, and the index goes down, you might decide to close your bet and take your profit when it reaches 3019 – 3021. How do you work out how much you won?
When your bet is an up or a down bet, spread betting makes it easy to figure out the values, as you don’t have to account for separate transaction commissions. The difference in the number of points between your entry and exit positions is 3174.5-3021. This amounts to 153.5 points. Your bet was simply placed at £5 per point, so you multiply this by the number of points to find that your total winnings turn out to be £776.50.
Some of the time, your bet will not win as the index will go in the opposite direction. Assume in the above example that the index rose instead of falling after you placed your short bet. Say it went to 3195 – 3197, and you decide to close the bet and cut your losses.
The amount you lost is just as easy to calculate. The difference between the opening and closing prices is 3197-3174.5, which is 22.5 points. Multiplying this out means is that you lost £112.50.
You can also place a futures style bet on the CAC 40, which allows you to hold onto it longer without paying any interest. Against that, the spread is usually larger with a futures bet. The current quote is 3166.8 – 3172.8. Say you decide that the CAC 40 that is going up in the longer-term, and place a buy bet for £9.50 at the buying price of 3172.8. Over the weeks, you watch the steady progress of the CAC 40 upwards, finally deciding to take your winnings when it reaches 3293.0 – 3299.0. You close your bet at the selling price of 3293.0.
Figuring out how much you’ve won, again you just simply work out the points difference – 3293.0 less 3172.8 is 120.2 points. Multiplying this by your stake of £9.50 gives you a total win of £1141.90.
You need to keep a watch to see if the bet turns against you, and make sure that you minimize your losses by closing a losing bet quickly. If the CAC 40 went down instead of up after you placed your bet, you might choose to close the bet at 3135.4 – 3141.4. Once again it would close at the selling price, in this case 3135.4.
The number of points you have lost is 3172.8 less 3135.4, which is 37.4 points. Multiplying by your stake, this bet has cost you £355.30.
How to Spread Bet the CAC 40
The CAC 40 index is based on the French stock market, headquartered in Paris. Sometimes it’s simply shortened to CAC, or the France 40. As the name implies, it is based on the share prices of 40 companies on the French stock exchange. The 40 companies are chosen from the top 100 companies by an independent steering committee which meets quarterly.
The companies on the Euronext Paris stock exchange, which is what the Paris Bourse’s name has now come to be, are first ranked according to free float market capitalization and according to share turnover in the last 12 months. The top 100 are looked at individually so that the selection of the CAC 40 is chosen to be a relevant benchmark for portfolio management, and to provide an underlying basis for derivatives. So rather than mechanistically selecting the composition of the index, the French try to make it reflect their economy.
The value that each company brings to the index is weighted by market capitalization, which is the market value of the company resulting from the number of shares and the price per share. So companies with more shares and a higher value per share have a bigger influence on the index. To prevent too much distortion, when the index is reviewed every quarter the Index Steering Committee make sure that no company accounts for more than 15% of its value, regardless of its capitalization. Subsequently, however, there is no adjustment until the next review if a company should exceed this after rebalancing.
Now it is well understood that France is a second string in the European financial markets. The most important economy in the EU is Germany, and that is why all eyes turned to Germany to take care of “bailouts” of weaker countries, such as Greece. As the UK did not adopt the euro, there is no question whether England should be directly involved in bailouts.
The CAC 40 has been rather volatile in the last year, ranging from a low of 2700 to a high of 4200 and is currently trading low in its range around 3100. This serves to emphasize the care that you must take when you are spread betting on indices so that you don’t get caught out holding a big loss. The way to avoid this is to have a trading strategy, and preferably a trading plan written out, which will require you to close your bet and accept a minor loss quickly if the bet runs against you, rather than hanging on and hoping that it will turn around. It has often been said, hope is not a viable trading strategy.
Occasionally the CAC 40 has seen 400 points shift in a week, but the usual daily range is up to 40 points. One advantage of the France 40 if you are looking to spread bet on markets other than the UK is that the markets will be open during normal working hours. The US and Asian markets are obviously not open for the whole period.