Trade the Hang Seng Online

Trade the Hang Seng Index with a trusted Australian broker

Speculate on one of Asia’s prime stock market indices with an Australian brokerage, offering fast execution, competitive spreads and an advanced trading infrastructure.

A Primer on the Hang Seng Index (HSI)

The Hang Seng Index (HSI) is frequently referred to as the Hang Seng and regarded as one of the main barometers for Asian equity markets. It is traded on SEHK (Stock Exchange of Hong Kong), which is currently the third largest stock exchange in Asia in market capitalisation terms and growing.

  • Over 50 years old
  • Market capitalisation weighted
  • 50 largest companies on the Hong Kong Stock Market
  • Contains four sub-indices
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Over 50 Years Old
Established in 1969, the Hang Seng celebrated its 50th anniversary in November 2019. Its idea was conceived by then Chairman of Hang Seng Bank, Ho Sin Hang, which he envisaged as the “Dow Jones Index for Hong Kong”. Its official launch was on 24th November 1969

Market capitalisation weighted
Market-cap weighting is a popular method used across many modern stock market indices, which breaks away from the price-adjusted mechanism used by the Dow Jones. It means that stocks with a larger market-cap are given a higher weighting to the index and have a greater impact upon the performance of the index. It therefore makes sense for Hang Seng traders to keep an eye on some of the larger stocks in the index to better assess the strength of weakness of the index.

50 largest companies on the Hong Kong Stock Market
By some measures 50 stocks may not sound a lot for an index when compared to the S&P 500 or even the Russell 2000 of the US. Yet these 50 stocks account for 58% of the SEHK in market-cap terms, which itself is the third largest exchange in Asia. Therefore, it remains a closely watch index for Asian sentiment.

As of July 2020, the top five stocks measured by market-cap are:

  • Tancent Holding Ltd
  • Industrial and Commercial Bank of China Ltd
  • China Construction Bank Corp
  • Ping An Insurance Group Co of China Ltd
  • China Mobile Ltd
  • Bank of China Ltd
  • China Life Insurance Co Ltd
  • AIA Group Ltd
  • PetroChina Co Ltd
  • Bank of Communications Co Ltd


Contains Four Sub-Indices
in 1985, four sub-indices were introduced to help better classify the stocks:

  • Finance
  • Utilities
  • Properties
  • Commerce & Industry.

However, the stocks can be further broken down into 12 industries which are similar to those of the GICS system and includes:

  • Energy
  • Materials
  • Industrials
  • Consumer Discretionary
  • Consumer Staples
  • Healthcare
  • Telecommunications
  • Utilities
  • Financials
  • Properties and Construction
  • Information Technology
  • Conglomerates

How Can You Trade the Hang Seng Index?

As the Hang Seng (HSI) is simply an index of a collection of stocks, it is not in itself a tradable instrument. For traders to speculate on its movements, they must use a derivate of the index. Traditionally this was done via the futures markets, but their high holding costs made them only accessible to institutions and large traders.

However, FXTRADING.com offer CFDs (contracts for difference) which are another form of derivate, yet far more accessible due to their relatively low holding costs. By using a CFD, the trader is not entering a contract or trading the underlying market, yet they ca still access live market prices for a fraction of the holding costs offered by futures markets.

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Long example: Hang Seng CFD (HK50)
A trader buys 10 contracts of the HK50 CFD a 25,000

  • If the price rises to 26,000 the trader could exit for a profit around HKD $10,000
    • (# contracts x contract size) x (exit price – entry)
    • (10 x 1) x (26,000 – 25,000)
  • If the price falls to 24,500 the trader could exit for a loss around – HKD $5,000
    • (# contracts x contract size) x (exit price – entry)
    • (10 x 1) x (24,500 – 5,000)
  • A 1% margin requirement with 100:1 leverage requires HKD $2,500 of capital
    • (# contracts x contract size x price) / leverage
    • (5 x 1 x 12,500) / 100

 

Short example: HK50 (HK50 CFD)
A trader sells 10 contracts of the HK50 CFD at 20,000

  • If the index falls to 15,000 the trader could exit for a profit around HKD $50,000
    • (# contracts x contract size) x (entry – exit price)
    • (10 x 1) x (20,000 – 15,000)
  • If the index rises to 22,000 the trader could exit for a loss of around HKD -$20,000
    • (# contracts x contract size) x (entry – exit price)
    • (10 x 1) x (20,000 – 22,000)
  • A 1% margin requirement with 100:1 leverage requires HKD $2,000 of capital
    • (# contracts x contract size x price) / leverage
    • (10 x 1 x 20,000) / 100

 

Costs associated With CFDs

Spread:
FXTRADING.com aim to keep transactional costs to a minimum, and the spread is a nominal transaction fee to enter a trade. The spread is the difference between the bid and ask prices and applied to the trade once it is opened. You can see the spread in MT4’s “Market Watch” window and deal ticket, and it is simply the difference between the bid and the ask price (bid – ask).

The spread is variable rate, and the width of it is dictated by the amount of liquidity available to the market. If there is more trading activity, we would expect the spread to be thinner (cheaper) than when there is less trading activity. Therefor we would typically expect to see the spread for our HK50 CFD thinner when the underlying exchange is open during Asian hours.

In this example, the spread is 5 index points (equivalent to HKD $5).

HK50
Bid / Ask:
25,000.00 / 25,005.00

In the next example, the spread is 10 index points (equivalent to HKD $10.00).

HK50
Bid / Ask:
25,010.00 / 25,020.00

Swaps:
At the end of each day, swaps are calculated and applied to open positions. They can either be a credit or a debit, depending on whether the trade is long or short and what the underlying interest rate is for the currency it is traded in. Swaps are derived from a countries interbank rate, therefor our Hang Seng HK50 CFD is calculated on HKD (Hong Kong dollars) and derived from the HKMA (Hong Kong Monetary Authority) rate.

To view the swap rates, go MT4’s market watch window, hover over the HK50, right-click and select “Specification”.

 

Market Drivers for the Hang Seng Index

Drivers for equity market come in many forms, and their importance fluctuates. Whilst some such as economic data make their impact on the index on the daily basis, central bank policy or geopolitics can be les frequent yet more severe. However below are some of the basic drivers which traders should at least be aware of.

  • Global Equities
  • Central Banks
  • Politics / Geopolitics
  • Large-cap equities
  • Risk-appetite
  • Earnings Season
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Global Equities
The Hang Seng can share a positive correlation with global equities, assuming that a domestic driver is not overpowering global sentiment. In 2008 we saw the Hang Seng Index fall sharply as the global financial crisis unfolded and global equities entered bear markets around the same time. The reverse is also true as the Hang Seng enjoyed a strong bullish rally between 2016 and 2018 in line with global indices.

Central Banks
As the Hang Seng can trac global equities, it can also take its cues from global central banks. In March 2020 we saw the Hang Seng Index embark upon a strong bullish rally as central banks around the world injected huge flows of liquidity into financial markets.

Politics / Geopolitics
In June 2019, protests erupted in Hong Kong due to an extradition bill with China, and the civil unrest weighed heavily on the Hang Seng over the subsequent months. Whilst this is an extreme example and not one which comes around often, it demonstrates how a market driver can appear to dominate the direction of a market, putting all other traditional drivers on to the back burner.

Large-Cap Equities
Due to the Hang Seng being a market-cap weighted index, the largest stocks can at times drive the index. A trader might be more confident in a trend persisting if the majority of larger stocks are moving in the same direction. Alternatively, if there are mixed signals among the larger cap stocks it may suggest the index could potentially struggle to breakout convincingly and remain within a range.

Risk-Appetite
Also know as risk-sentiment, it is a measure of how confident investors feel about the future and how this can show up in market pricing. In the financial media you will frequently hear about the two states of sentiment, “risk-on” and “risk-off”. If investors are feeling confident about the future they tend to buy risker assets such as equities in a “risk-on” environment, which can benefit indices such as the Hang Seng. Yet if investors are fearful of the future, this can weigh on indices such as the Hang Seng during a “risk-off” environment.

Earnings Season
Companies listed on a stock exchange release earnings reports for investors, to show how the company is performing relative to expectations. At the individual level, an earnings report is not likely to make a large impact on an index. However, if there are multiple reports released around the same time and beat or miss their expectations, it can send an index higher or lower. Earnings season relates to when there are clusters of reports released each quarter, so it makes sense for index traders to at least be aware of earnings reports which can be accessed via earnings calendars freely available across the internet.

Statistics of the Hang Seng Index

Equities across the globe show a tendency to outperform over certain period of the year such as the fourth quarter (October through to December). They can also be less volatile over the July to August period as liquidity dries up. Such patterns can be described as seasonal, although as they are simply an average of past performance, they are not regarded as predictive. However, these patterns can be useful to know, especially if they align with a traders fundamental or technical view.

Read on to see some interesting statistics about the Hang Seng Index, using data from the last 30 years.

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Monthly-Close Statistics for the Hang Seng:

Between January 1990 and December 2019 (30 years)

  • 7 out of 12 months (58.3%) posted positive, average returns
  • October and February were the most bullish month on average at 2.9% and 2.5% respectively
  • October and April closed the month in positive territory 76.7% and 70% respectively
  • 5 out of 12 months (41.7%) posted negative, average returns
  • August and March were the most bearish months on average at -1.7% and -0.7% respectively

Why Trade the Hang Seng Index?

  • Trade long and short
  • Trade a directional view on Asian equities
  • Low margin requirements
  • Hedge a basket of related shares
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Trade Long and Short
Market prices move up and down, and CFDs such as our Hang Seng HK50 provide traders with the ability to trade in bullish and bearish markets with long and short positions.

Trade a directional view on Asian equities
Whilst global equities can move in tandem and share a positive correlation, they can also diverge and outperform or underperform relative to each other. Using the market drivers above can help a trader assess whether an index is more (or less) likely to outperform others as part of their trade selection. For example, if a trader is bullish on the fundamentals of Hong Kong (or Asia) they could initiate a long HK50 CFD trade, in hope that it will rise in future.

Low Margin Requirements
FXTRADING.com offers leverage of up to 100:1 for stock market indices. This means margin requirements (collateral to open a trade) are just 100th of the underlying market, making it considerably more affordable than futures markets.

Hedge a basket of related shares
If an investor holds a basket of Asian shares, they could use a CFD such as the HK50 to hedge them if they wanted to mitigate risk. To hedge against a bullish portfolio of stocks, the investor would short (sell) an equivalent amount of the HK50 CFD. This way, if their share portfolio loses value they would theoretically gain on their short HK50 CFD. However, this would assume a tight correlation with their portfolio and the HK50.

Why Trade the Hang Seng Index with FXTRADING.com?

  • Trade the Hang Seng Index over extended hours
  • Competitive Spreads
  • Top-tier liquidity providers
  • No dealing desk
  • Multiple Deposit Options
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Trade the Hang Seng Index over extended hours
The Hong Kong Stock Exchange, which the Hang Seng traders on, officially operates between 09:30 and 16:00 local time. However, traders can access our HK50 CFD nearly 20 hours a day, which provides opportunity to trade potential themes outside of typical market hours, regardless of the time zone they reside.

Competitive Spreads
FXTRADING.com offer some of the tightest spreads in the industry thanks to their top-tier liquidity providers.

Top-Tier Liquidity Providers
We have built relationships with some of the largest liquidity providers in the business, from top-tier banks to ECN liquidity providers

No Dealing Desk
We do not have a trading desk to interfere with traders or offer requotes. Instead we are an ECN broker (electronic communications network) with STP (straight through processing).

Multiple Deposit Options
FXTRADING.com may be an Australian broker but we have a global reach, so we allow our clients to deposit funds into their account in multiple currencies via many popular payment methods.

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