With a GDP of about 2.8 trillion dollars, France is the world’s fifth-largest economy and the second-largest economy in Europe, after Germany. It is home to the headquarters of the biggest stock exchange in Europe, so when it comes to financial trading, France is a popular clime for day trading and swing trading. Want to know about trading in France?
Home to Euronext Paris (EURONEXTPAR), the headquarters of the largest stock exchange in the EU, France is Europe’s top destination for financial trading. Both the markets and the regulations make trading in France (day trading, swing trading) attractive. Being a member of the EU, trading in France is regulated by both the French and EU authorities. As a retail trader, you are protected by the MiFID 2 act of the EU.
In this post, we answer some questions about trading in France — day trading and swing trading.
The top markets for day trading in France
With the tight integration of the European markets, day trading in France is not limited to only the markets that are domiciled in France.
Nonetheless, France is home to Europe’s top equity market — Euronext Paris (EURONEXTPAR), which is France’s sole stock exchange. Established by Napoleon’s order in 1802, under the name Paris Bourse, the exchange is based in Paris, the capital of France and a major financial hub in Europe. In the year 2000, Paris Bourse merged with the Amsterdam Stock Exchange and the Brussels Stock Exchange to establish Euronext, the pan-European exchange that is now the largest in continental Europe. The exchange is regulated by the Autorité des Marchés Financiers (AMF) and is also subject to EU rules.
Electronic trading is carried out using the Universal Trading Platform (UTP), which is being replaced by Optiq, a new multi-market trading platform for trading stocks, bonds, and ETFs.
Some of the most popular stocks trading on the exchange include Total, L’Oréal, Sanofi, Airbus, and BNP Paribas. The main stock index is the CAC 40, a market-cap-weighted index that tracks the performance of the 40 largest stocks on the exchange. CAC 40 is used as the benchmark index of the French stock market, and its components are reviewed quarterly.
There are other related indices, including the CAC MID 60, which tracks the performance of the second 60 largest companies, and the CAC 40 GR, a gross total return index that tracks the capital gains of the CAC 40 companies over time. European indices such as the Euronext 100 index, which tracks the performance of the largest and most liquid European stocks, and the EURO STOXX 50, an index of the top 50 stocks in the Eurozone, can also be traded in France.
Apart from equities and indices, day traders in France have access to the futures market. Although the Marché à Terme International de France (MATIF), a futures exchange and a clearing house in France, was absorbed in the merger of the Paris Bourse with Euronext NV to form Euronext Paris, futures traders in France can access LIFFE Connect, the electronic trading platform of the London International Financial Futures Exchange and an affiliate of Euronext.
In the area of forex trading, traders in France have access to the forex market via some major French banks and online forex brokers. The French forex market is regulated through Autorité de Contrôle Prudentiel et de Résolution (ACPR).
A French trading strategy for the French markets
France is the seventh largest country in the world by GDP, making it one of the most important stock markets in the world. They have some of the biggest companies in the world, such as Louis Vuitton, Hermes, Dior, and Sanofi. However, we are traders, not investors, so let’s look at some trading strategies for French stocks.
However, the French stock market hasn’t performed well since 2001. Given the lack of outstanding returns, we decided to seek other strategies to trade this market and found that seasonal trading strategies could hold significant potential.
How is the French stock market composed?
The most popular stock index for the French market is the CAC 40. It was created in December 1987. It tracks the 40 largest French stocks based on the Euronext Paris market capitalization.
Some of its components include L’Oreal, Renault, Airbus and Michelin, and the companies mentioned in the introduction. Here is how the index has performed since its inception in 1985:
The returns haven’t been mind-blowing, but compared to other European countries’ indexes like Spain and Italy, it has done pretty well.
However, we asked ourselves if this performance could be improved through seasonal trading strategies, and we decided to start by determining the best day for French stocks.
What is the best day of the week for French stocks?
An interesting idea to backtest is to see which days French stocks perform the best.
In other words, how would a strategy that only holds French stocks on Mondays perform? And how about Tuesdays? And so on.
We used the ETF EWQ (iShares MSCI France) with the data adjusted for dividends. Here is the equity curve from 1996 until today:
The results are pretty fascinating. Tuesdays and Wednesdays are the best-performing days, while Mondays are the worst. Interestingly, we found a similar pattern in Italian stocks.
Does the End-of-quarter seasonal trading strategy work in French stocks?
Another seasonal trading strategy is the end-of-quarter strategy.
The end of a quarter is generally regarded as a very important time for investors because it’s typically when most fund managers and hedge funds rebalance their portfolios, which can generate higher than usual volume and volatility.
The end-of-quarter trading strategy tries to capitalize on these times by holding stocks the last few days of the quarter.
The trading strategy we are going to backtest is pretty simple:
- At the close on the sixth last trading day of the quarter, we go long EWQ (hence, we are long the last five trading days of the quarter).
- At the close of the month, we exit and sell our position.
Here is the equity curve:
As you can see, the returns are not impressive. The strategy is invested 8.06% of the time and generated a CAGR of 1.97%. The risk-adjusted return is 24.4%(CAGR divided by time invested in the market), which is not bad.
Does the turn of the month trading strategy work in French stocks?
Lastly, we will backtest another popular seasonal strategy called the turn of the month.
The idea is similar to the end-of-quarter strategy: at the close of the fifth last trading day of the month, we buy EWQ. We hold it for seven trading days. Thus, we sell on the third trading day of the new month. Here is the equity curve:
The returns are impressive! The CAGR of the strategy is 9.72% vs. 7% for buy hold, while the system is only invested ⅓ of the time. Without a doubt, this has the best returns of the strategies backtested today, even though the strategy has gone more or less sideways for a decade since the equity peak in 2012.
Seasonal trading strategy for French stocks – conclusion
In summary, today we saw how the French stock market is composed and backtested seasonal trading strategies using the French ETF EWQ. We found that the end-of-month trading strategy works well and might be useful for further research.
The most popular swing trading strategies in France
There are many swing trading strategies used by traders in France. These are some of them:
- Range trading: This strategy is used in a range-bound market. It involves buying at the lower boundary of the range and selling at the upper boundary.
- Breakout trading: With this strategy, the trader aims to trade the breakout of price above a resistance level or below a support level. The idea is to ride the momentum that often follows a breakout.
- Retracement reversals in a trend: This involves trading the individual impulse waves in a trending market. Here, the trader enters the market when the pullback against the trend is over so that they can ride the next impulse wave in the direction of the trend.
How to perform technical analysis on French stocks
Performing technical analysis on French stocks is like performing technical analysis on any other asset. Open the stock’s chart and study the price action or attach your preferred indicators to analyze how the market has been moving so you can predict its most likely future moves.
The influence of economic indicators on French markets
As with any other market, macroeconomic indicators affect French markets. The economic indicators that affect the French markets are those from France and the European Union. The effects, however, vary with the market considered. For example, a low interest rate would be good news for the equity market, but not the bond or forex market. Similarly, high inflation may be good news for the Euro but not the equity market.
Navigating French regulations for day traders
Stock trading in France is regulated by both French and European regulators — the Autorité des Marchés Financiers (AMF) and the European Securities and Markets Authority (ESMA). As a day trader, you need to understand the applicable regulations and taxes and comply with them.
Exchange-traded derivative products are subject to ESMA’s MiFID II rules, which affect the minimum margin, available leverage, and so on.
How to effectively manage risk when trading in France
You can manage risk through your position sizing techniques. It is better to risk only a small percentage of your account balance in a trade. Good position sizing ensures that you can only lose a little of your capital if the trade goes against you.
Another way to manage risk is to diversify your trades across different timeframes, strategies, and markets. That is, you trade on different timeframes at the same time and also trade different markets and use different strategies.
The benefits and drawbacks of using leverage in French markets
Almost anything can happen in financial markets. The only way smart people can get clobbered…is through leverage. It’s the one thing that can prevent you from playing your hand. All the hands we enter look pretty good. But you have to be able to play them out.
- Warren Buffett
The use of leverage is actually borrowing from the broker so you can trade a bigger position size. For forex and commodity trading, MiFID II rules allow a maximum 30:1 leverage for retail traders.
Leverage can help you increase your profits if the trades go in your favor. However, if the trades go against you, you would lose more because the profit and losses are calculated based on the total worth of the position traded, not the margin deposited.
For example, if you are using a €1,000 account to trade a €10,000 position, a 1% decline in the asset would result in a 10% in your account.
The role of fundamental analysis in French swing trading
Fundamental analysis is quite important when swing trading in France because many of the assets tend to react to macroeconomic indicators and news releases.
So, when swing trading, keep an eye on the fundamentals, even if you are using a technical analysis strategy. You can combine both fundamentals and technical analysis by using fundamentals to determine the direction to trade and using your technical analysis to know when to enter the market.
Tips for finding reliable sources of information and research for French trading
Here are some tips for finding the right information when trading in France:
- Go through the companies’ websites: The most reliable source of information about a stock, such as earnings reports, is the website of the company that issued the stock.
- Check the broker’s website: Another good source of information is the broker’s website. Big brokers have a news section that shows the most recent market-moving information.
- Search financial websites: Financial websites, such as Yahoo Finance, MorningStar, Bloomberg, Reuters, and so on can also be a good source of information.
The role of emotional intelligence in successful French trading
Nothing is easy if you can’t detach from money.
Emotional intelligence is very important in trading. Without getting your emotions under control, it is difficult to make money from trading the financial markets. To achieve successful French trading, you have to learn how to manage your trading emotions, such as fear of missing out, fear of losing, greed, meaningless hope, anger, and overexcitement. These emotions can lead you to make silly trading mistakes that can cost you money.
The top exchanges and brokers for trading in France
Euronext Paris (EURONEXTPAR) is the sole stock exchange in France. Some of the best brokers for stocks and commodity trading in France include:
- Interactive Brokers
- IC Markets
How to choose the right timeframe for your French trading strategy
The right timeframe for your French trading strategy depends on your style of trading. If you like to day trade, you definitely would have to choose intraday timeframes, such as the hourly to 15-minute timeframe or even the 5-minute timeframe.
On the other hand, if you want to swing trade, you have to choose the daily timeframe and probably combine it with the 4-hourly timeframe.
The importance of risk management and position sizing in French trading
Risk management is important when trading French stocks and indices, as those assets can have huge volatility sometimes. It is advisable to trade only a small percentage of your account size at a time. you can limit it to 1% of your account per trade. Stop loss and diversification are other ways you can minimize risks when French trading.
The impact of global events and news on French markets
As with any other market, French markets are also affected by news of events happening around the globe. For example, the war in Ukraine caused a spike in the prices of energy stocks and commodities in France, as it did in other markets too.
The use of algorithms and automation in French trading
You can use trading algos to trade in France, but ESMA regulations require your firm to notify the competent authorities of the trading venue at which you engage in algorithmic trading, and you must take the necessary steps to ensure risk management.
The role of fundamental factors such as company earnings and management in French trading
Company earnings and management can affect the way investors see a stock. So, such fundamental factors are important when trading French stocks.
The benefits and drawbacks of trading French derivatives such as futures and options
The French derivative markets are traded via major derivative exchanges in Europe, such as Euronext’s LIFFE. Derivatives trading provides French traders with the right environment to hedge their exposures in the French markets. However, volatility can be a problem for naïve small traders.
Why is France considered a popular destination for day trading and swing trading?
France, home to Euronext Paris, the largest stock exchange in the EU, offers favorable markets and regulations for financial trading. The integration of European markets also contributes to the attractiveness of trading in France.
What regulations govern stock trading in France?
Stock trading in France is regulated by both French and European authorities, namely the Autorité des Marchés Financiers (AMF) and the European Securities and Markets Authority (ESMA). The MiFID II rules of the EU provide protection for retail traders.
What is the role of leverage in French markets, and what are its benefits and drawbacks?
Leverage allows traders to amplify profits, but it also increases losses if trades move against them. In the French forex market, MiFID II rules allow a maximum 30:1 leverage for retail traders.