Trading the SMI 20 Index: Insights & Strategies

The Swiss Market Index (SMI), or the Swiss 20, serves as the primary indicator of Switzerland's stock market, encompassing the top 20 largest and most liquid stocks listed on the SIX Swiss Exchange (SIX).

Established to reflect the overall market performance, the SMI provides a snapshot of the Swiss economic climate, showcasing significant growth since its inception in 1988.

This Plus500 guide will explore the structure of the SMI, examine the factors that influence its movements, and discuss various strategies for trading within this key market index.

What Is the SMI 20?

Launched on June 30, 1988, by what is now known as the SIX, the SMI was initially standardised at 1500 points. As of May 2024, the value has surpassed 11,000 points, marking an increase of more than sevenfold from its initial value.

The SMI is noteworthy not just for its extensive coverage but also for its selectivity in tracking the largest and most liquid equity instruments on the SIX Swiss Exchange. As of April 2024, these companies collectively account for over 75% of the Swiss stock market value based on their free-float market capitalisations.

The composition of the SMI, fixed to 20 shares, is reviewed annually to ensure it accurately reflects market dynamics, with a capping at 18% for any single component to prevent overrepresentation.

Using the free-float method, market capitalization is determined by multiplying a stock's price by the number of shares available in the market. This free-float adjustment ensures the SMI includes only tradable shares, providing a more accurate tool for traders monitoring the Swiss Blue Chip equity market. As such, the SMI is often cited as the foremost indicator of the overall health of the Swiss stock market.

Why Trade the SMI 20?

Trading the SMI provides traders with a straightforward way to engage with the Swiss financial market without buying individual stocks directly. By focusing on the SMI, traders can potentially spread their risk more evenly compared to trading in single stocks, offering a more comprehensive view of the market’s overall performance.

One of the main advantages of trading indices like the SMI is the potential of reduced volatility. The index’s composition of 20 major stocks means that the underperformance of one stock may be offset by better performance of others, leading to more stable price movements and less volatility overall.

The History of the SMI

The SMI was officially launched on June 30, 1988. Initially, the number of stocks in the SMI varied, including between 18 and 29 companies, until a significant rule change on September 24, 2007, standardised the number to 20. This adjustment aimed to streamline the index and make it more representative of the market's leading companies.

A pivotal moment in the index's history occurred in October 2008, when global financial upheavals due to the Great Recession led to the SMI recording its highest-ever daily gain of 11.39% following the U.S. announcement regarding the part-nationalisation of big banks.

Another notable event was in January 2015, when the Swiss National Bank (SNB) removed the minimum exchange rate cap against the euro, according to SIX. This resulted in a dramatic single-day drop in the SMI by -8.67%.

The index peaked in December 2021, achieving a record high of over 12,500 points. As of May 5, 2024, the SMI continues to perform strongly, with a valuation of over seven times its initial value of 1,500 points.

Interpreting the SMI 20

To better understand the composition of the SMI 20, let's examine some of the key stocks that make up this prominent Swiss benchmark.

What Stocks Are in the SMI 20

As of April 2024, the SMI consists of 20 major Swiss companies, with the top 10 components including prominent firms like Nestlé (NESN.VX), Novartis (NOVN.VX), and Roche (ROG.VX). These 10 components collectively account for 82.12% of the index's total weightings.

Nestle alone has an 18.27% share, Novartis holds 15.66%, and Roche 13.29%, indicating these large-cap stocks’ significant influence on the index's dynamics.

In terms of industry representation within the SMI, healthcare dominates with a 36% share, followed by consumer goods at 24% and financials at 19%.

How Is the SMI 20 Calculated?

The SMI is calculated based on the average prices of the 20 underlying stocks that comprise the index. The weighting of each stock within the SMI's calculation is proportional to its market capitalisation; thus, larger companies have a greater impact on the index's movements. However, to maintain a balanced representation, no single stock's weighting can exceed 18% of the total index.

In terms of the index's components, only the stock prices are considered in the SMI's calculation. Stock dividends are not included, focusing solely on the price movements of the stocks within the index.

Additionally, the SMI is calculated in real-time and updated continuously during trading hours. Every trade involving a stock that is part of the SMI prompts an immediate recalculation of the index, ensuring it always presents the most current market conditions.

What Influences the Price of the SMI 20?

The value of the SMI is subject to fluctuations driven by various economic, corporate, and geopolitical factors. Understanding these influences is crucial for traders who engage with this index. Here's a breakdown of some factors that may influence the value of the SMI:

• Economic Indicators: Changes in key economic statistics like inflation, unemployment rates, and interest rates, particularly those set by the SNB, can impact the SMI.


• Corporate Earnings: The financial results of companies within the SMI may contribute to market volatility as traders react to earnings reports and adjust their market positions accordingly.


• Index Composition: Regular rebalancing of the SMI, which includes the addition or removal of stocks, may lead to shifts in the index's value.


• Geopolitical Events: Events such as international political disputes, peace treaties, and significant elections can destabilise markets and influence the SMI. These events affect trader confidence and market dynamics.

Each of these factors can sway the SMI, underlining the complexity of index trading and the array of considerations that traders must manage.

Ways to Trade the SMI 20

There are several methods* for trading the performance of the SMI without directly purchasing stocks from the companies within the index, as the index itself is simply a benchmark.

Index Mutual Funds

These funds may offer an affordable way to replicate the market’s performance. They generally feature lower management fees than traditional mutual funds, potentially making them a cost-effective option for mirroring the SMI. However, they come with disadvantages as well. These funds are typically passively managed, meaning they offer less flexibility to reallocate funds during downward market trends.

Index ETFs

ETFs operate similarly to index funds in that they track the performance of an index but are traded like stocks on an exchange. Each ETF clearly states the index it benchmarks against and provides performance comparison charts, allowing you to buy and sell it like any other stock. The trading price of an ETF reflects its net asset value, which is calculated based on the total value of the underlying securities it holds.

Although this method offers more trading flexibility, traders risk larger bid-ask spreads during market volatility and the potential for trading commissions through your brokerage.

Index Futures

Index futures, also known as stock or equity market index futures, are futures contracts that allow a trader to buy or sell a financial index at a predetermined future date. These contracts commit the trader to either receive or provide the cash value of the underlying index at the contract's expiration unless they choose to close their position earlier through an offsetting trade. Essentially, index futures are agreements that speculate on the future price direction of an index.

Index futures allow traders to use leverage, providing greater asset exposure with lower capital. While this can amplify gains, it can also magnify losses.

Contracts for Difference (CFDs)

In addition to index mutual funds, ETFs, and futures, trading the performance of an index can also be achieved through index contracts for difference (CFDs). This method potentially offers traders greater flexibility, lower capital requirements due to leverage, and the convenience of trading in both rising and falling markets.

However, it's important to note that using CFDs for stock index trading carries risk, as leverage can amplify your losses as well.

*Availability subject to regulation.

How to Trade the SMI with CFDs

Trading the SMI using CFDs offers a strategic approach to capitalise on the fluctuations of index values without the need to own the underlying assets.

CFDs are essentially contracts between a trader and a provider, designed to speculate on the price differences between opening and closing a trading position. This method may provide swift exposure to market movements and allow traders to gain exposure on upward and downward trends.

Suppose there's a significant development from Nestle that suggests positive trends in the food and beverage sector. In response, you decide to take a long position on the Swiss 20 index, anticipating that Nestle's performance will boost the entire index. Should the index indeed increase, you stand to gain by selling at a higher price than your entry point. However, if the market reacts differently and the index declines, closing the position would result in a loss.

One key feature of using CFDs is trading on margin using leverage. For example, with a leverage ratio of 1:10, if a CFD contract is valued at 10,000 euros, the trader only needs to provide 1,000 euros to open a position. This leverage allows traders to amplify potential returns with a smaller initial outlay, but it also means they bear the risk of equally magnified losses if the market moves against them.

Furthermore, CFDs on futures enable traders to execute buy or sell orders based on their predictions of whether the index will rise or fall in value. Traders can open a long position if they anticipate an increase in prices or go short if they predict a decline, providing flexibility in strategy regardless of market direction.

While trading index CFDs contracts offers many advantages, it's important to be aware of the risks involved due to potential unpredictable price fluctuations.

SMI 20 Trading Hours

According to SIX, the trading hours for the Swiss Stock Exchange are from 06:00 to 22:00 CET on trading days and from 08:00 to 18:15 CET on clearing days. These hours apply Monday through Friday, except on Swiss holidays.

However, trading hours on the Plus500 platform may differ and can be found at the instrument details.

SMI 20 Trading Strategies

Staying informed about market developments is crucial for successfully trading the SMI. Employing a combination of fundamental and technical analysis in your trading strategy can provide a comprehensive view of the market. Fundamental analysis considers economic, political, social, and global factors to assess potential index movements, while technical analysis focuses on price movements and patterns to predict future trends.

Here are a couple of strategies that involve technical analysis that traders can use to trade the SMI.

Trend Trading

Trend trading involves using price chart trends and recurring movements to gauge the index’s overall direction. This method enables traders to capitalise on both upward and downward trends by identifying when the index price consistently moves in one direction over a period of time.

Breakout Trading

Breakout trading involves entering the market when the price of an index or its underlying assets moves beyond a defined price range. This typically involves taking a long position when a stock or index price surges above resistance or initiating a short position as it falls below support.

Such breakouts often indicate a strong likelihood that the price will continue in the direction of the breakout, offering traders opportunities to position themselves accordingly. This approach can be particularly effective in capturing significant moves early in their development.

Risk Management for SMI CFD Trading

When trading the SMI through platforms like Plus500, traders can access several features designed to manage trades effectively. Alongside options like 'close at profit' and 'close at loss,' which allow traders to set specific levels for automatically closing their positions to secure profits or limit losses, there is also a 'guaranteed stop'.

This option ensures that a position will close at the specified price, providing an additional layer of risk management. However, it incurs a fee if triggered and is not available on all instruments. While the close-at-profit and close-at-loss features do not incur a fee and can be helpful, they do not guarantee closure at the precise price due to market fluctuations.

Conclusion: Understanding SMI 20 Trading

The SMI 20 serves as a vital measure of Switzerland's stock market, providing insights into the performance of its top 20 companies. The SMI presents various trading opportunities through indirect trading through ETFs, mutual funds, and CFDs, catering to different trading preferences and risk profiles.

The SMI offers an appealing option for those looking to diversify their portfolios or gain exposure to the European market. To successfully navigate trading the SMI, it is essential for traders to stay informed about market influences and apply careful trading strategies while considering risk management tools to safeguard their capital.

If SMI trading piques your interest, you can start trading SMI 20 index CFDs with Plus500.

SMI 20 FAQs

What is the Swiss Market Index (SMI)?

The SMI is the primary stock market index representing the top 20 largest and most liquid stocks listed on the SIX Swiss Exchange, providing a snapshot of the overall market performance and the Swiss economic climate.

Why should traders consider trading the SMI?

Trading the SMI allows traders to engage with the Swiss financial market comprehensively without the need to buy individual stocks, offering a way to spread risk and reduce volatility through exposure to major Swiss companies.

What are some common strategies for trading the SMI?

Common strategies include trend trading, which capitalises on the index’s directional movements, and breakout trading, which focuses on entering the market when prices move beyond defined price ranges.