What Is EURO STOXX 50?

What Is EURO STOXX 50?


03 Feb 2020

The EURO STOXX 50 Index is used to measure the current situation in the European economy. The calculation of this index takes into account 50 large companies in Europe. The selected companies are called "blue-chip", meaning they are well-established and financially sound. Similar to the Dow Jones 30 in the United States, it gives traders and investors information on the current trading opportunities.

What Is EURO STOXX 50?

The EURO STOXX 50 shows the share price performance of 50 companies with the highest capitalization. They account for 60% of the total cap in Europe, which is the majority of publicly available shares that are regularly traded. The companies cover 19 supersectors in 11 Eurozone countries.

STOXX Limited is a company that calculates stock indices. Indices they calculate are often used as financial instruments underlying financial products. Additionally, they are used to gauge risk.

Understanding EURO STOXX 50 Companies

The constituents within the Euro STOXX 50 composition are stable, yet dynamically developing companies. Therefore, the list of companies is reviewed annually in September for any changes. The table below demonstrates a part of the up-to-date index composition.

NameIndustryWeight (%)
SAPTechnologyTechnology
TOTALOil & GasOil & Gas
LVMH MOET HENNESSYPersonal & Household GoodsPersonal & Household Goods
ASML HLDGTechnology3.87
LINDEChemicals3.79
SANOFIHealth Care3.62
ALLIANZInsurance3.60
SIEMENSIndustrial Goods & Services3.20
UNILEVER NVPersonal & Household Goods2.98
AIRBUSIndustrial Goods & Services2.85

As has been said before, there are 19 supersectors as defined by the Industry Classification Benchmark (ICB). Companies are categorized depending on their primary source of revenue. Stocks are ranked based on the free-float market capitalization for each of the supersector. The largest stocks make the final selection list.

Factors Influencing the Euro STOXX 50 Index Price

The Euro STOXX 50 index is influenced by quite a lot of factors, both internal and external. These factors can cause the price to rise or fall, so any trader should keep an eye on them. It is mainly affected by:

  • The economic indicators of the selected companies.
  • Political and economic events in the Eurozone.
  • Recent events with the Euro exchange rate movement.
  • Monetary policy in the United States and other major market participants.

Advantages and Disadvantages of Euro STOXX 50

Working with Euro STOXX 50 can be a way even to increase your capital. The following factors increase your chances of profits:

  • It is comprised of stocks with the highest liquidity and trading volume in European markets.
  • Most of the companies in its composition are German and French enterprises, which are characterized by a stable economy.
  • Includes many organizations within the industrial sector, which correspond to the most rapidly growing ones.
  • It is more resistant to price drops compared to the stocks of individual companies.
  • On the other hand, the index is not without its flaws:
  • The index is affected by political events in the Eurozone.
  • Severe performance deterioration (stock quotes) in even one enterprise in its composition often affects the entire index.
  • Heavily dependent on currency rates.

EURO STOXX 50 CFD Trading

The Euro STOXX 50 CFD (Contract for Difference) operations are operated through speculation or by investing. Like any stock market index, it allows you to opt for different CFD strategies offered by your trading platform of choice.

What Is CFD Trading?

CFDs deal with differences in prices of various underlying assets that are traded in financial markets. The contract helps you profit from differences between current asset value and its value at the end of the contract. Bear in mind that it does not imply ownership of the underlying asset itself.

Before CFDs, you needed a large capital to trade on international trading exchanges since the associated fees were extremely high. CFDs opened access to exchange-traded instruments to more people with different funds.

Advantages and Disadvantages of CFD EURO STOXX 50

When discussing CFD Euro STOXX 50 trading, it is worth highlighting what makes it more profitable and effective in comparison with some other assets. The advantages of this method include:

  • By working with the EURO 50 index CFDs, you get to expand your portfolio to the European market (if allowed by local regulations).
  • You can trade in either direction, choosing between short and long positions. You make a profit both from growth and fall in prices.
  • You reduce your financial risks from future price changes.

Before giving preference to CFDs, each trader should also consider the negative aspects associated with this route. The main drawback is often the high spreads, which reduce income and increase losses.

Also, this type of trading makes it impossible to own the asset and receive dividends. However, it is not a big obstacle as the majority of market participants are more likely to obtain speculative profit rather than own the asset.

EURO STOXX 50 CFD Trading Strategies

The Euro STOXX 50, as well as its constituents, are listed on the Frankfurt Stock Exchange. If you reside outside of Europe, you can work with this instrument in one of the following ways:

  • Through a local broker registered in the eurozone or the USA.
  • Through a foreign broker providing access to trade on this exchange.

The Euro STOXX 50 is often used for speculative trading and geopolitical investing since it’s a critical assessment of Europe’s market. Therefore, to speculate on changes in Europe’s economic situation, traders use:

  • Bullish strategy – It is applicable at times when stock prices within the index have recently reached a peak and reversed. Remember to use stop loss to mitigate the risks.
  • Bearish strategy – Use this strategy if the index price is relatively low, but the market news is favorable. The strategy fits long-tern as well as short-term trading.

Conclusion

The Euro STOXX 50 is one of the key indexes for the European Union stock market. Its calculation includes the main indicators of the current economic activity of the 50 selected largest companies. If you use this powerful indicator correctly, you can make good profits from changes in its dynamics.

The success of investing depends on the correct understanding of the asset you are working on and your predictions. But if you want to back your knowledge with practice, register a free Demo account on Libertex. Improve your skills and push yourself to become a better trader without risking real money.

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