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Best Brokers for Trading the Hang Seng Index
Hang Seng (HSI) Index
The Hang Seng Index (HSI or HK50), follows the movements of largest and most liquid stocks listed on the Hong Kong Stock Market (HKEx). The 50 companies included represent approximately 60% of the entire Hong Kong Stock Exchange. HSI is the main indicator for determining the overall performance of the Hong Kong stock market. The index was launched on the 24th November 1969 and was backdated to 31st July 1964.
The HSI represents companies from Hong Kong and Mainland China from 11 different industries. These industries include energy, materials, industrials, consumer goods, consumer services, telecommunications, utilities, financials, properties & construction, information technology and conglomerates. The largest industry representation within the index is financials. This industry comprised 48.2% of the HSI as at June 2017.
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Which companies are listed on the HSI?
The HSI is reviewed on a quarterly basis in order to determine if the index needs to be changed or adjusted.
Companies are added or removed from the index according to their free float market capitalisation. The formula for market capitalisation involves multiplying the stock price by the number of shares outstanding. In determining market capitalisation, all shares are included. The index is comprised of A shares, B shares, H shares, Red Chip and P Chip (see notes).
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74% and 89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Best Forex Brokers for Trading the HSI
Here are the best forex brokers for trading the HSI.
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How is the value of the HSI derived?
The Hang Seng Index is a capitalisation weighted index. Each company within the index is weighted according to the total market value of the company’s outstanding shares.
No single company can represent more than 10% of the HSI. This is done in order to avoid single stock domination.
On a daily basis, the performance of the HSI is determined by calculating the percentage difference between the market capitalisation at the close of the day and the market capitalisation at the start of the day.
How to trade the HSI
The HSI is traded on various futures exchanges around the world. The majority of the daily volume from the HSI occurs on the Japan Exchange Group (JPX). The Japan Exchange Group was formed by the merger of the Osaka Exchange and the Tokyo Stock Exchange in 2013.
Another way to trade the HSI is through CFDs (contracts for difference). CFDs are fairly similar to a futures contract. The major similarity between the two instruments is the amount of leverage involved. Both types of contracts offer a great degree of leverage, but generally CFDs tend to be slightly more leveraged than futures contracts. The actual amount of leverage offered will depend on the broker and the regulatory requirements.
Advantages of trading the HSI as a CFD
CFDs are convenient as they give traders the chance to speculate on a market without having to actually own the individual stocks that the product tracks. They also allow traders to go “short” on an instrument, which means that the trader can take advantage of an index when it is going down, and not just when it is going up.
Another advantage is that there is usually no commission charged on a CFD transaction. The broker will normally collect their fee from the spread price, the difference between the sell and the buy price for the instrument.
London Capital Group are authorised and regulated by the UK’s Financial Conduct Authority to provide CFDs. They offer a Hong Kong Index CFD.
The minimum trade size is 0.01 lot with the value of 1 lot or pip being HKD 50. A margin requirement of 1% is required.
The minimum requirements for a buy trade on the Hong Kong Index CFD would, therefore, be HKD 13.53 (27054*0.1*50*0.01% = HKD 13.53).
*All information collected from LCG as at 30 July 2017. Please refer to the LCG website for full terms and conditions.
When choosing to trade with a regulated broker, such as IG or Plus500, traders can also benefit from access to a wide range of additional underlying markets through a single platform.
A Hong Kong 50 Index is also calculated by two other data providers, STOXX Limited and FTSE International Limited. These data services use a market capitalisation weighted formula for calculating the value of the index on a daily basis. However, STOXX and FTSE use different components in their index. The prices, therefore, vary between the three indices.
A shares are securities of Chinese incorporated companies quoted in Chinese Yuan that trade on either the Shenzhen or Shanghai stock exchanges.
B shares are securities of Chinese incorporated companies that trade on either the Shenzhen or Shanghai stock exchanges. They are quoted in US Dollars.
H shares are securities of People’s Republic of China incorporated companies. The shares include a nomination process by the Central Government for listing and trading on the Hong Kong Stock Exchange. They are quoted in Hong Kong dollars.
Red Chip is a company incorporated outside the People’s Republic of China, trading on the Hong Kong Stock Exchange. It represents a company that is substantially owned by Mainland China state entities. Most of their revenue is from mainland China.
P Chip is a company that is controlled by mainland individuals, The company must originate in mainland China. It must be incorporated outside of the People’s Republic of China (PRC) and traded on the Hong Kong Stock Exchange with a majority of its revenue derived from mainland China.
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