Last Updated on April 19, 2022 by Quantified Trading
Why trade the Euro Stoxx 50? The Euro Stoxx 50 is one of the world’s most popular equity indexes to trade. Because of its popularity, a new Mini futures contract has seen the day of light to make it more accessible for smaller retail traders and investors.
You should trade the Euro Stoxx 50 to improve your diversification, especially if you are mainly trading US stocks or indices. Euro Stoxx 50 offers diversification both in types of strategies and time frame. For example, momentum and gap trading strategies work much better on Euro Stoxx 50 than on the S&P 500 and the contract mainly trades at times when the US markets are closed.
What is the Euro Stoxx 50?
Let’s first start with explaining what kind of products it actually tracks:
Euro Stoxx 50 is an index constructed in 1998 to track the blue-chips trading in the Eurozone. It’s traded at the EUREX. As the name implies, the index is constructed of 50 stocks from 8 Eurozone countries:
- The Netherlands
France and Germany have the biggest weightings with 30-35% each.
It is estimated that the index captures about 60% of the capitalizations of the respective countries. As of writing, November 2021, the ten biggest components are ASML, Linde, Siemens, L’Oreal, LVMH Moet, SAP, Totalenergies, Sanofi, Allianz, and Schneider Electronic.
In September every year, the indexed is reviewed.
Euro Stoxx 50 Sub-indices
There are five pretty self-explanatory sub indices as well:
- Euro Stoxx 50 France
- Euro Stoxx 50 Germany
- Euro Stoxx 50 Italy
- Euro Stoxx 50 Netherlands
- Euro Stoxx 50 Spain
Why purpose does the Euro Stoxx 50 serve?
The index serves as an index for a wide range of derivatives: mainly futures, but also options and some other structured products. The index was most likely set up to provide hedging and easy exposure for capital allocators and institutions.
The product has been immensely successful: on a normal day it normally trades more than 600 000 contracts.
Please keep in mind that the Euro Stoxx 50 is quite correlated with the DAX-40. Please read our previous article about why trade the DAX index.
One of the reasons for the success of the product is the relatively small contract size:
Specification of the Euro Stoxx 50 futures contract
Like the DAX index (contract), the Eurostoxx 50 has expiry four times per year: March, June, September, and December. The ticker code is FESX.
One point in the index is worth 10 EUR. The current price of the index is 4 340 and thus one contract is worth 43 400 EUR, a pretty modest amount compared to the DAX-contract. The spread is recently halved from 1 point to just 0.5, meaning the minimum price change is 5 EUR.
As with all financial futures contracts, there is no physical delivery.
Specification of the Euro Stoxx 50 micro-contract
To allow smaller traders access to futures trading, EUREX is offering a smaller contract with a multiplicator value of only 1 EUR. Hence, one futures contract has a value of 4 340 EUR.
What are the trading hours for Euro Stoxx 50?
The 10-minute pre-trading starts at 0750 local German time before the official open at 0800 one hour before most of the stocks begin trading on their respective stock exchanges. Official trading ends at 2200 local German time (CET time).
Why trade the EuroStoxx 50?
There are many reasons to trade the Euro Stoxx 50 index. The futures contract is very liquid and you can easily get exposure to more than 50% of the market capitalization in the eurozone. The deep liquidity means you’ll never be ripped off on the hidden cost of slippage in your trading.
It’s also cheap to trade: At Interactive Brokers, you can trade one contract for about 1 EUR per contract (depending from customer to customer).
The European markets are somewhat different than US equities, hence you might be able to diversify your trading. One reason for the difference is that the EU economy is more export-driven than the US economy. Furthermore, it has different companies and a different time frame: the EU markets are mostly traded while US markets are closed.
- Which time frame is best in trading? What time frame should you trade?
- What does correlation mean in trading? (Trading strategies and correlations)
Different types of strategies work better on Eurostoxx 50
For example, night and overnight trading work differently on the Eurostoxx 50 and the DAX-40 compared to the US contracts. We have found setups and trading strategies that don’t work at all in the US but that have worked perfectly for years on DAX.
Mean reversion trading strategies work well on Eurostoxx 50, but we have found breakout strategies, gap strategies, and momentum to work as well. In the future we have planned to present some of these strategies in our monthly Trading Edges:
Seasonal trading strategies in Euro Stoxx 50:
Let’s end the article with a few seasonal trading strategies and patterns in Euro Stoxx 50: