Trading CFD indexes; what’s hot right now?
By Emmanouil Lemonakis, Head of Central Eastern Europe Region for Saxo Bank
Trading stock CFDs is one of the fastest growing new investments. Many traders are now seeing the advantages of being able to take a position in the market and trade live market price movements without the need to own the underlying stock. But with more than 20 stock indices available to trade, investors are spoiled for choice. Here we investigate which stock market indices are hot right now.
The German DAX (DAX.I) is by far the most popular CFD index for day traders and is renowned for being one of the most influential indices in the market. The index is made up of 30 of the largest, German companies trading on the Frankfurt Exchange, such as BMW, Siemens and Adidas. Because Germany is the largest individual European Germany economy, day traders see the DAX index as the pulse of the European market, providing a perfect mix of liquidity and volatility.
With the European markets opening ahead of US markets, the performance of the DAX is also used by traders to gauge trends. More often than not, the S&P500 index follows the same trend as the DAX, so if the DAX is trending higher in European trading, then it is quite likely the S&P500 will also trend higher when the US market opens. In the case where the S&P does not follow the DAX's trends; this is usually a sign to look out for a reversal of the trend.
The DAX and other European indices are generally highly responsive to economic data, and, as such have seen high volatility during key moments of the Greek economic crisis. However, as there is very little exposure to Greek debt from the private sector, the DAX still remains a hot index to watch. While the DAX has been pressured by the recent Greek economic crisis it is now trading around 11,500. The DAX is forecast to hit 13,000 before year end.
Euro Stoxx 50
For the medium term investors the hottest index at the moment would be the Euro Stoxx 50 index (STOXX50E.I). The Euro Stoxx 50 index tracks the performance of 50 stocks from 12 Eurozone countries, giving investors great exposure to Europe's leading blue-chip companies. With the index covering stocks from Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain, Euro Stoxx has become increasingly popular as investors hope to capture some of the growth expected across Europe from the ECB's bond purchasing program. The companies that are represented by this index are some of the largest and most liquid stocks in Europe and the index is renowned for acting as a gauge to the wider health of the European economy. Only companies that have fully transitioned to the euro currency can be members of the Euro Stoxx 50 index, with some of the world's biggest brands represented, such as the Airbus Group, Deutsche Bank, L'Oreal, and Unilever represented in this index.
The Euro Stoxx 50 was initially hit hard by the announcement of the surprise Greek referendum dropping 3.7% initially, but has rebounded to around 3,650, with 4,000 expected by the end of the year
The S&P500 is one of the most well-known indices made up of a group of 500 large companies listed on the NYSE or NASDAQ. This index is considered representative of the overall performance of the US stock market and therefore also the health of the US economy. Usually if the S&P500 is trending higher this correlates with an improvement in the economy of the United States.
While the S&P500 is always a popular investment choice, it is not so much that it is considered "hot" right now, but that rather it is considered a temporary safe haven while there is volatility in the European markets. With the US quantitative easing program now having ended and all of the focus being on Europe and the Greek economic crisis, the S&P500's performance has been less volatile and easier to forecast recently than some European stock indices which makes it an important asset to consider for any investor's portfolio. Trading at around 2,110 recently, traders looking to diversify may consider adding S&P500 to their portfolio, especially during this period of high market volatility.