What is the IBEX 35 Index?
The IBEX 35 is the leading benchmark index for the stock market in Spain. The index includes 35 of the largest and most liquid stocks listed on the Madrid Stock Exchange. The index is heavily weighted to financial services, communications, and utilities companies. It is considered a gauge for the Spanish stock market and economy.
The Index is also known as the Spain 35 index.
IBEX 35 definition
The IBEX 35 (Índice Bursátil Españo Index) is a free float market capitalization weighted index of the most liquid stocks listed on the Madrid Stock Exchange. The index is rebalanced twice each year to ensure that the 35 most liquid stocks on the exchange remain in the index.
History of the IBEX 35
The IBEX35 index was launched in 1992 and recorded its lowest ever level later the same year. The index then strengthened through the rest of the 1990s, trading as high as 12968 in early 2000. Like many indexes the IBEX declined substantially in 2001 and 2002 after the Dotcom bubble burst.
The index had its strongest rally from 2003 to 2007, when the construction and real estate sectors were booming. This was followed by a period of record volatility while the Global Financial Crisis played out between 2007 and 2009. A recovery was short lived, as the European Debt Crisis followed in 2011, with Spain amongst the worst affected countries.
Since then, the IBEX35 has lagged other country indexes due to its low exposure to technology and growth stocks. The index has remained in a sideways trading range between 6000 and 12000 since 2009.
How the IBEX 35 in calculated
The IBEX 35 is based on free float market capitalizations, which are not capped. A company’s free float is the number of outstanding shares that are not restricted or held by related parties. The free float is expressed as a percentage which is multiplied by the market capitalization to arrive at the free float market capitalization.
To calculate the weight of each company, the sum of the free float market capitalizations of all 35 companies is first calculated. The weighting of each company is then calculated by dividing its free float market capitalization by the total value of all 35 companies.
To calculate the index level, the total free float market cap of all 35 companies is divided by the same value for a base period, and then multiplied by the index level for that base period.
Some market capitalization weighted indexes have a cap on the weight of each company - however, this is not the case for the IBEX index.
How Does IBEX 35 Work?
The IBEX 35 index is maintained by Bolsas y Mercados Españoles, which also manages financial markets in Spain. The index is reviewed by a technical advisory committee twice each year, in June and December.
Any changes to the index are based on the six-month period prior to the review. The primary criteria for inclusion is liquidity, rather than market value.
The stocks that are included are the 35 companies with the highest traded value over the review period, provided that they account for at least 0.3% of the total index value and trade on more than 33% of trading days, or fall into the 20 most valuable companies.
Any changes that are made come into effect on the first trading day following the third Friday of the review month.
IBEX 35 Companies
The following are the largest 10 companies in the index and account for 71% of the total weight of the index.
Industria De Diseno Textil SA
Banco Santander SA
Cellnex Telecom SA
Amadeus IT Group SA A
Banco Bilbao Vizcaya Argentaria SA
Aena SME SA
Airports and Air Services
The following three companies account for nearly a third of the market capitalization of the index.
Iberdrola is a power utility that generates and distributes electricity in Spain, UK, USA and Brazil. The company employs 34,000 people and has a market value of €69 billion, making it the second most valuable company in Spain
Industria De Diseno Textil SA
ITX is an apparel and household product retailer. The company’s brands include Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Zara Home.
With a market value of €75 billion, ITX is the most valuable company in Spain, however it’s low free float reduces its weight in the index.
Banco Santander SA
Banco Santander is the largest financial services group in Spain. The company also operates globally and has a total of 11,950 branches. The company has a market value of €27 billion.
IBEX 35 Sector breakdown
The sectors that dominate the IBEX 35 are an important aspect of the index. The top 5 sectors in the index are as follows:
The IT, Healthcare, Energy and Real Estate sectors together account for just 16% of the index.
Pros and Cons of IBEX 35
- The IBEX 35 is not highly correlated with other prominent indexes. This makes it a useful tool for hedging and pair trades.
- The index has relatively high short-term volatility, which makes it attractive for short term traders.
- The IBEX index is more defensive than other benchmark indexes under certain market conditions. This is due to the high exposure to utilities and the low exposure to technology companies.
- The IBEX 35 has underperformed most other benchmark indexes over the last decade.
- The index has high exposure to the utilities sector and low exposure to growth sectors like IT.
- The index is less liquid than indexes like the S&P500 and FTSE100 which makes it slightly more expensive to trade due to a wider spread
IBEX 35 vs other indices
IBEX 35 vs Dow Jones
The IBEX 35 outperformed the Dow Jones 30 index during the bull markets of the 1990s and mid-2000s, however, it has underperformed substantially since then. The IBEX has low exposure to the tech and healthcare sectors that have led the Dow over the last decade. If these sectors were to underperform, the IBEX may outperform. The IBEX is slightly more volatile than the Dow.
IBEX 35 vs Nikkei 225
Japan’s benchmark index, the Nikkei 225, has more exposure to the IT and Healthcare sectors than the IBEX. During the 1990s, the IBEX outperformed the Nikkei. Between 2000 and 2018 the overall performance was similar, while the IBEX has underperformed significantly since 2018. The IBEX is a lot more volatile than the Nikkei making it attractive for active traders.
IBEX 35 vs CAC 40
The CAC 40 index and the IBEX 35 have tracked one another fairly closely over the past 30 years and generated similar returns over the full period. While the IBEX outperformed during the 1990s and the mid-2000s, the CAC 40 has outperformed substantially since 2009.
IBEX 35 vs Russel 2000
The IBEX 35 and the Russel 2000 tracked one another closely between 1991 and 2009, but they have uncoupled since then. While the IBEX index remains at March 2009’s level, the Russel 2000 has gained more than 200%. The Russel index has high exposure to healthcare and IT which has led the index performance. The IBEX is slightly more volatile and better suited to short term trades.
Why to trade IBEX 35 Index
The IBEX index has not performed well over the last decade and has been disappointing for investors. However, the index is perfectly suitable for trading for several reasons:
- The index is quite volatile over short periods.
- It can be shorted using CFDs.
- It often trades in clearly defined trading ranges.
- Periods of low volatility often lead to larger moves.
How to trade IBEX 35
IBEX 35 trading hours
The Spanish stock market trades from 9h00 to 175 (CET) each day. These are the normal hours that the index is updated. However, the futures contracts on which CFDs are based have a longer trading day. The hours that CFDs can be traded vary from one broker to the next.
Fundamental analysis of IBEX 35
This index is affected by several factors. Firstly, the index reacts to movements in global markets, in particular European and US equity markets. Although the correlation with other indexes is relatively low, global markets still influence the index.
The second factor that affects the index is economic data in Europe and Spain. GDP growth, interest rates, consumer spending and employment data for Europe and Spain can all effect the index.
Like any index, corporate earnings for the member companies influence the index over time, particularly for the companies with the largest weights.
The index has low exposure to healthcare and technology companies. This means it may outperform other European indexes if these sectors are under pressure.
The index also has low exposure to growth stocks. This means it may underperform other indexes when global equity markets appreciate.
Technical analysis of IBEX 35
When analyzing charts of the index, it’s important to consider several different indicators and methods. Over the last decade, the index has traded in a range without persistent trends. This means long term moving averages have been of limited value.
However, trendlines and support and resistance lines have been particularly useful.
The index often remains within a trading range for extended periods. Bollinger bands can also be used to define the trading range.
Tips and tricks for IBEX 35 trading
- The IBEX 35 index follows different patters compared to other indexes and should be treated differently.
- Periods of low volatility are often followed by larger than normal moves. You will need to adjust your strategy to anticipate the rising and falling volatility.
- It is a good idea to combine several timeframes when trading this market.
- Short timeframes such as 5 and 15-minute can be used to identify potential reversals on charts with longer timeframes like 1 and 4-hour and daily charts.
- The IBEX Index is flat over the last decade, unlike most other indexes which have an upward bias. While the index continues to move sideways, active traders should look to long and short positions.
What is CFD trading of IBEX 35
CFDs are a type of derivative instrument, similar to futures contracts. They allow traders to easily open both long and short positions using leverage. CFDs can be traded on any liquid assets, including indexes, stocks, currencies, cryptocurrencies and commodities.
They offer more flexibility than other types of derivatives. You can start trading CFDs with any account size, and you can trade several asset classes using one trading platform like the Libertex platform.
Because CFDs are traded using margin, only a small percentage of the value of a position needs to be deposited before making a trade. CFDs are also easier to short sell than other instruments.
The best strategies for IBEX 35 trading
The IBEX 35 index is best suited to intraday trades and trades that last one to five days. The following are some of the strategies you can consider. In time you may be able to develop your own approach to trading this market.
The IBEX 35 often moves independently from other European and US indexes. This is due to the fact that the index doesn’t have much exposure to high growth stocks. This makes it a useful tool for pair trades.
A pair trade consists of a long and short position in different instruments. You open a long position in the instrument you expect to appreciate, and a short position is the instrument you expect to decline. This could be based on the primary trend for each instrument, or on trading ranges.
One approach using the IBEX, is to wait for a negative catalyst in another European market, short sell that market index using CFDs and open a long position using CFDs on the IBEX 35.
Alternatively, you can use a short IBEX 35 position to hedge a long position on another index. The chart below shows the net performance of a long DAX 30, short IBEX 35 position.
The IBEX 35 index frequently trades in a clearly defined channel, with sharp reversals occurring when the index level reaches support or resistance levels.
The reversals can be anticipated using daily and 4-hour charts, and then executed on shorter timeframes like 5 or 15-minute charts. The chart below is a 15-minute chart with support and resistance lines from the daily chart.
Positions can be held until momentum slows, or until the index reaches a major support or resistance level. You will need to use a tight stop loss in case of a false reversal.
When the index trades in a very narrow range, a breakout in one direction or another is inevitable. Breakout trades can be traded on intraday timeframes or held for longer is there is good volume.
To find a potential breakout trade, wait for a period when at least three consecutive days have a range that is noticeably lower than average. Ideally the price action should be confined to a clearly defined range too. Wait for the index to break out of the range on good volume before entering a trade in the direction of the breakout. Hold the position until momentum or volume fade. The following chart illustrates two trades like this.
The chart below illustrates such a channel on the 4-hour chart. Positions can be opened when the index reverses from one side of the channel and held until they reach the other edge of the channel. You can begin scaling out of a position when it reaches the middle of the channel in case the price reverses before reaching the target. You will need to use a tight stop loss in case of a false reversal.
Interesting Facts about IBEX 35 index
- When reviewing the stocks in the index, the advisory committee does not consider the sectors that are represented in the index.
- The individual weight of each stock in the index is not capped like it is in other indexes.
- The primary criteria used to included stocks is the trading volume rather than market value. This ensures that the index represents the most liquid stocks.
- The IBEX 35 index is part of a family of indexes. The other IBEX indexes include medium and small cap indexes, a dividend index, and two growth indexes.
The IBEX 35 index has not performed well over the last decade. However, it is relatively volatile and often trades in a clearly defined range. These characteristics make it ideal for trading with instruments like CFDs.
You can trade CFDs on the index with Libertex . If you want to get started, you can open a risk-free demo account today. This will allow you to get used to the trading platform and learn more about trading the IBEX 35 index, with no risk or cost.
Libertexis a broker and trading platform which offers CFDs stocks commodities, indices, ETFs and cryptocurrencies with leverage of up to 100 times. The platform offers free trading tutorials and state of the art trading tools.
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IBEX 35 FAQ
What does IBEX 35 stand for?
IBEX stands for Índice Bursátil Españo Index (Spanish Stock Exchange Index). The 35 represents the number of stock in the index.
How is IBEX 35 calculated?
The IBEX 35 index is calculated by adding up the free float market values of the 35 companies in the index, and then dividing the total by a divisor. The divisor is calculated by dividing the total market value from a previous date by the index level from that date.
The weight of each stock is calculated by dividing its free float market value by the total value of all 35 companies.
Should I invest in the IBEX 35?
The IBEX 35 has not performed well since 2009. It may be worth investing in when it is trading at the lower edge of its 10 year trading level. The index is a better vehicle for trading with CFDs or similar instruments.
Can IBEX 35 go to zero?
Theoretically yes – but that would imply investors attribute no value whatsoever to any companies in the index. The likelihood is virtually zero.
What are the major indices related to the IBEX 35 index?
The IBEX index is correlated with other European indexes, though it is less correlated than most.
What is the best way to trade the IBEX35?
CFDs and futures contracts are best for trading the index, They allow you to use leverage and trade long and short positions. This gives you maximum flexibility when trading the index.