IBEX 35 – what every trader needs to know

IBEX 35 – what every trader needs to know

IBEX 35 is one of the key barometers for measuring Spain’s stock market strength. Find out what makes it special and relevant for the financial markets.

IBEX 35 – brief intro

Let’s start by getting the technicalities out of the way. IBEX 35 includes – you guessed it - 35 of the largest and most actively traded companies on the Madrid Stock Exchange and, by extension, in the whole of Spain.

IBEX 35 - members

Some IBEX 35 key members are famous names such as financial giants Banco Santander, BBVA and Banco Sabadell, steel and mining behemoth ArcelorMittal or the multinational conglomerate Acciona. IBEX 35 is a capitalization-weighted index, meaning companies with a higher value have a bigger weight.

IBEX 35 - how are companies included in the index?

Bolsas y Mercados Españoles (BME) manages the index as the primary operator for all Spanish stock markets. BME also reviews its constituents twice a year, usually in June and December. The latest exception took place in September 2020, when biotech company Pharma Mar replaced Ence, a multinational firm from the renewable energy sector.

Generally, the companies with the highest trading volume in Euro during the six previous months are included in the index, as long as each one of them boasts a market value of at least 0.3% of the total index value.

IBEX 35 – a short history

IBEX 35 was founded on January 14, 1992. However, its price has been calculated since December 29, 1989, when the base value was established at 3000 points. Unlike other Western stock indices, such as France40 or UK100, which peaked during the dot-com bubble from the late '90s to early ‘2000s, IBEX 35 achieved its highest level in November 2007 – 15.945 points. Its lowest was recorded in October 1992 – 1.873 points.

Between 2000 and 2007, Spain’s benchmark index experienced a boom as the country’s economy was flourishing. In the following couple of years, IBEX 35 went through intense volatility periods, with the global economic crisis affecting all markets.

In the 2010s, its value continued to show significant fluctuations, catching the attention of traders who were trying to speculate on its frequent and significant price fluctuations.

As of September 30, 2021, IBEX 35 sits at approximately 8.840 points.

What influences the price of IBEX 35?

Many factors can impact the IBEX 35 index - from economic, geopolitical to news announcements and various different events affecting the performance of the companies included within the index - to mention just a few.

For example, when the Spanish economy is on the rise (or even the EU economy), so does the IBEX 35 (the opposite also applies). Also, when the global climate is shaky due to Black Swan eventssuch as the terrorist attacks in the US - or various other unfortunate events on the geopolitical scene, the index tends to perform poorly.

As for relevant news announcements impacting IBEX 35, here are some of them:

  • The opening of the trading sessions in Spain
  • Spanish central bank press conferences & interest rate decisions
  • Earnings Reports of the Spanish companies included in the index

In a nutshell - what are the advantages of trading the IBEX 35?

The IBEX 35 reflects the overall health of the Spanish stock market. It includes some of the most profitable companies from a broad range of industries: steel, banking, utilities, consumer products, real estate, finance etc. In other words, the index measures the collective value of the top companies trading on a stock exchange.

For this reason, people see it as a chance to trade on multiple sectors and economic branches from one of Europe’s largest countries via a single instrument, offering them access to highly liquid and prominent stocks on the Madrid Stock Exchange.

Additionally, the index is well-known for its large trading volumes and short-term price movements, attracting day traders.

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Sources: investopedia.com, thebalance.com, babypips.com.

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