An Overview of Spain’s Financial Engine – IBEX 35
The IBEX 35 stock trading market index represents the 35 most prominent and liquid companies on the Madrid Stock Exchange. This is Spain’s main exchange. It is calculated by the Sociedad de Bolsas, which is the company running Spain’s securities markets. The exchange is reviewed twice a year by the Technical Advisory Committee. This committee is made up of reps from the stock exchanges and derivatives market, and professionals from the academic and financial fields. The companies are chosen based on their performance with the highest trading volume in Euros from the past six months. Once the liquidity has been appraised and securities have been measured, the committee takes into account a variety of factors and the top companies are included in the index.
A Brief IBEX 35 History
The IBEX 35 was established back on January 14, 1992. During 2000-2007 the index was the strongest performer compared to many of its Westers counterparts. At the onset, economic growth helped keep the index strong, however in January 2008 there was a downturn in the stock market which created one of the biggest falls in the Spanish equity market. It did rise again 3 days later.
IBEX 35 is a free float capitalization-weighted index, like most European stock indices, including DAX 30. This means that the index price is comprised from the components’ market capitalization multiplied by the free float factor (which can be anywhere between 0.1 and 1). Compared to many other European stock market indices, the IBEX35 does not have a weighting cap for the component stocks, meaning the highest market cap constituents have more influence on the index price.
The IBEX 35 uses the formula below to calculate the index value
The top 5 companies on the IBEX 35 are:
- Inditex SA = Value: $109,467 million
- Banco Santander = Value: $107,055 million
- Bankco Bilbau Vizcaya Arge = Value: $57,445 million
- Telefonica = Value: $50,883 million
- Iberdrola = Value: $48,837 million
Factors influencing the overall index price are country-wide or sectorial economic shifts, trade agreements/embargo, industry-specific taxation or legislation changes, significant shifts in share price of one or several of the major constituents.
A significant part of the IBEX 35 index composition is the banking sector; therefore, currency markets have a particularly high influence on the index’s performance, as opposed to broader market indices like S&P 500. The events that shake the stock market and influence the index price dynamics are political events such as Grexit (Greek exit), local elections, EU legislation issues, etc.
With the financial crisis that ripped through European markets, the index was also impacted by the news and fears of increased debts that were part of the Eurozone in 2007. There was also December 2013’s high unemployment rate of 25%. With the IBEX 35 being affected by European news, it can be a volatile instrument and provide some exciting opportunities to traders.
What makes IBEX is an attractive asset
Like with all indices, the IBEX 35 is determined by economic conditions in Europe, and worldwide, geopolitical tensions and the performance of the companies included within the index. For example:
- Economic conditions – When the economic conditions in Spain are good, the IBEX index seems to do very well.
- Geopolitical Tensions – When global events are calm, the IBEX 35 does well. However, when there is a concern (like the 2001 terror attacks on the US), the IBEX tends to fall.
Online UK traders can use the IBEX 35 as a great opportunity to trade the instability in the Spanish markets. Many of the companies are from a specific industry and by staying on top of these industries one can benefit and trade better overall with the IBEX 35.
IBEX 35 Trading information
- MT4 Symbol: SPAIN35
- Trading Time: Monday: Friday 08:00 – 18:59
- Country: Spain
- Currency: EUR
- Minimum Trade Size: 0.1
- The leverage is usually about
- Spread: Fixed over market
- Margin: 2.00%
- Increment: 1.00
- Exchange: MEFF
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Spain 35 main FAQs
Should I trade the IBEX 35?
The IBEX 35 represents 35 of the largest Spanish companies, and trading it can be particularly exciting as it is a somewhat volatile index, making larger daily moves than many other country’s indices. Rather than choosing a single stock it’s possible to trade the basket of the IBEX, which includes companies like Santander (banking), Iberdrola (utilities), Repsol (oil/gas), and ArcelorMittal (industry). The other positives to trading the IBEX 35 at AvaTrade is the ability to use leverage, and the ability to trade in both directions, potentially profiting whether the index rises or falls.
Why is the IBEX 35 important to traders?
The IBEX 35 is not only an indicator of the overall health of the Spanish stock market, it is also a highly respected international benchmark index. It includes the most liquid companies from a diverse range of industries including steel, banking, utilities, consumer products, real estate, and finance. Traders follow the IBEX 35 because it can provide them with good trading opportunities as the index is well-known for its trading volumes and volatility. Day traders are also attracted to the index and often profit from the daily short-term price movements.
What is the best way to trade the IBEX 35?
Buying up stock in all 35 of the components of the IBEX 35 would be an expensive proposition that’s out of the reach of most people. There are ETFs that mimic the composition of the index and these are good alternatives for those who want to make a longer-term investment in the Spanish market, but because of fees and commissions they aren’t the best for active trading. At AvaTrade we offer trading on the IBEX 35 with CFDs. This means trading is done against the price movements of the index and traders are able to go long or short the market equally easily. They are also able to take advantage of leverage to help boost potential profits.