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SMI 20 index trading
SMI 20 chart (Swiss Market Index) features the 20 largest and most liquid blue-chip companies in Switzerland and Liechtenstein; it represents nearly 90% of the total capitalization and trading volume of the Swiss Stock Market.
The SMI was established on June 30, 1988 with an initial value of 1,500 points. The composition of the Swiss Market Index is reviewed annually. The Full market capitalization (as of 29.12.2017) was CHF 1,145 bn. The SMI (also known as Swiss 20) reached all-time highs on 21/07/1998 (8489.00), 04/06/2007 (9548.09) and 24/1/2018 (9616.38), followed by periods of strong downtrends, resulting in the 05/10/1998 (5108.30), 12/3/2003 (3618.00), 9/3/2009 (4234.96) and 11/02/2016 (7425.05) lows.
SMI 20 Index Composition and Calculation
Just like Germany’s DAX 30 the SMI is a free-float, capitalization-weighted index, whose components are selected based on minimum capitalization thresholds and turnover rate as measured each September.
The largest securities are taken from the Swiss Performance Index (SPI), Switzerland’s overall stock market index. The index includes all the companies publicly traded on the SIX Swiss Exchange. SIX was one of the first exchange to launch electronic trading and cease floor trading, back in 1996. Together with the Deutsche Börse (the German Stock Exchange company), SIX contributed to the creation of Eurex, the third largest derivatives exchange in the world.
The SMI Index is a component of the SMI® Family of the SIX Swiss Exchange, which also includes the SMI®, SMIM® and the SMI Expanded®. The SMI now includes 20 securities (before the 2007 restructuring, the number of stocks included in the index was 25). The index value is calculated by dividing the market cap of each individual component by a divisor. The divisor is a number that is established arbitrarily to produce a value that can be compared over time.
The initial value for the SMI was set at 1,500 points on June 30, 1988. In September 2017, the board introduced an amendment to the calculation mechanism to comply with the European Securities and Markets Authority (ESMA) guidelines on diversification, establishing a weighting cap, whereby no company can have a weighting over 18% at any one time.
|Nestlé (NESN)||Food products|
|Roche Holding (ROG)||Pharmaceutical|
|UBS (UBSG)||Banking & Financial Services|
|Zurich (ZURN)||Full-Line Insurance|
The Factors Influencing the Overall Index Price of the SMI
There are many internal (country-wide) and external (sectorial economic shifts) factors that influence the performance of the SMI.
Given Switzerland’s strong reliance on exports, monetary policy decisions of the Swiss National Bank and trade agreements with its main trade partners (like the European Union) have a strong influence on the index price (such as the 2014 Swiss Referendum on limiting free movement of people from the EU and the 2015 decision to drop the EUR/CHF peg after the 2008 financial crisis).
Switzerland is an important economy in Europe, especially in the health care, consumer goods, banking and insurance sectors. Many Swiss companies operate directly or through subsidiaries across the European Union and beyond. Maintaining access to the Single Market is seen as fundamental for the national interest and for the Swiss economy.
Given the strong reliance on Swiss products and services all over the world, it comes as no surprise that the Swiss Market Index is highly influenced by international political and market events.
The health care sector accounts for almost 40% of the index composition. This is why health policy in the United States, one of the main markets for the pharmaceutical industry, can cause market shocks in Switzerland. For example, President’s Trump speech in 2017, saying that the US should negotiate better prices with drug companies, has led the entire sector to the verge of a crash.
The performance of world markets has a direct impact on the price of the Swiss Market Index, as there is an inherent correlation between world indices and the SMI. Other factors that may affect the price of the Swiss Market include: interest rates decisions, elections, change of trade policy, financial crisis, main partners’ events, Swiss national referenda, etc.
The SMI is one of the most traded instruments in the world and an underlying asset to various derivative financial products, including CFDs.
The key benefits of CFD trading the SMI include:
- High liquidity
- Full transparency
- Relatively predictable price dynamics outside crisis situations
- Ease of access to information regarding main index price movers
- Vast news coverage
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- Potential profits on rising and falling market
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- Low capital requirements to gain a high exposure on the Swiss Market
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SMI20 Trading Main FAQs
- What is the SMI 20?
The SMI 20 is the Swiss Market Index 20, a market capitalization weighted index of the 20 largest companies that trade on the SIX Swiss Exchange. This group of stocks can be considered the largest blue cap Swiss companies. The index includes some of the largest and most well recognized companies including food giant Nestle, the global investment bank UBS, and pharmaceutical leader Novartis. The index sees its heaviest weighting from the health care sector (nearly 40%), followed by the consumer goods and financial sectors (roughly 24% and 22% respectively).
- What has the largest impact on the SMI 20?
Because Switzerland is an export-reliant economy and is located in Europe the performance of many of the stocks within the SMI is dependent on the economic performance of the European Union. In addition, because of the heavy weighting of the health care sector the health care policies in the U.S. can have a significant impact on the SMI. Even though Switzerland is considered as a neutral country politically the SMI will still be impacted by global geopolitical events.
- What is the best strategy for trading the SMI 20?
An indicator based strategy that relies on two or more technical indicators is the best strategy for trading the SMI. For example, a combination of the Stochastic Oscillator and either the Relative Strength Index or Moving Average Convergence Divergence can deliver reliable trading signals. One can also combine moving average crossovers with the RSI and MACD to find profitable trading opportunities. Whatever method is chosen the trader must be consistent and always follow their rules, otherwise the trading strategy will be doomed to failure.
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