Poland 20 Trading Guide: What Is the WIG20 index?

When trading CFDs, you have the opportunity to trade on a wide array of different market sectors, from commodities and shares to indices. In this article, we’ll focus on one specific index, Poland’s WIG20.

TL;DR

• WIG20 Index Basics: Represents Poland's top 20 companies on the Warsaw Stock Exchange, crucial for tracking national market trends.
• Index History: Started in 1994, has seen significant highs and lows, influenced by global and local economic shifts.
• Index Calculation: Uses market capitalization of constituent firms, adjusted for changes and multiplied by 1,000 for its final value.
• Trading the WIG20: Accessible via CFDs, futures, options, or trading individual constituent stocks.

What Is the WIG20 Index?

The WIG20 index is a key stock index in the Central European nation of Poland, representing the twenty largest companies listed on the Warsaw Stock Exchange (WSE). It serves as a critical measure of how the value of these leading companies changes over time, thus providing insight into the overall direction of the Polish stock market.

Introduced on April 16, 1994, the WIG20 index started with a base value of 1,000 points. It is a price-type index, meaning that its calculation considers only the transaction prices of its constituent shares, excluding dividend income. The index is designed to include a maximum of five companies from any single sector, ensuring diversification.

As the largest stock market index in Poland, the WIG20 is capitalization-weighted, emphasising the market value of its 20 constituent companies. These companies represent the most valuable and liquid stocks on the Warsaw Stock Exchange. The WIG20 also serves as the foundation for derivative indices like the WIG20short and WIG20lev.

The WIG20 Index Price History

The WIG20 index began its quotations in April 1994, only a few short years following Poland's transition from a centrally-planned to a capitalist economy. Four days following its debut, the WIG20 reached 1,350 points, marking a record one-day increase of nearly 16% on April 21, 1994. Despite this initial surge, the index suffered a significant drop, with a real rate of return of -63% by the end of 1994, primarily due to high inflation of 32%. The index hit its lowest point on March 28, 1995, at 577.9 points. A swift recovery followed, with a real rate of return of 62% in 1996, the highest in WIG20 history.

In late 1998, the WIG20 fell to under 1,000 points, but the dot-com bubble propelled it to a doubling in value by early 2000. Another significant rise occurred during the commodity boom from 2000 to 2008. The WIG20 peaked at 3,917.87 points in October 2007, with an average annual real return of 23% from 2002 to 2007. However, the global financial crisis led to a 48% drop by February 2009.

After recovering to 2,932.62 points in April 2011, the index fluctuated until 2017 when it spiked by more than a quarter to 2,630.37 points in early 2018. The COVID-19 pandemic caused a sharp decline in the WIG20's value as the global economy faced the travails of widespread lockdowns, but the index rebounded later that year. This index's value has continued to grow in more recent times, posting a growth rate of nearly 38% from the beginning of 2023 to June 2024.

WIG20 Composition: What Companies Are Included in the WIG20?

The WIG20 counts among its listed companies some of Poland’s greatest economic success stories. Below, you’ll find five of the largest firms, as measured by market capitalisation, included in this index:

Top 5 Companies Listed on the WIG20 (As of June 2024):

How Is the WIG20 Calculated?

The value of the WIG20 index is calculated according to a few simple steps, as detailed below:

1. To start, the market capitalization of the firms listed on the WIG20 is added up. Market capitalisation is the total value of a company's shares of stock. This calculation is made at two points in time: the current session and the base day (a specific starting point).
2. Next, a correction factor is applied which adjusts the index's value to account for changes like new companies being added or dividend payments. To find the correction factor for the current session, the correction factor from the previous session is taken and adjusted based on total market capitalization.
3. Thirdly, these three elements (the current market capitalization, the base day market capitalization, and the current correction factor) are combined.
4. Finally the result is multiplied by 1,000 to get the WIG20's value.

In simpler terms, one starts with the value of the companies' shares, adjusts for any changes in the companies or their shares, and then uses these adjusted values to calculate the WIG20 index. This gives a snapshot of how the top 20 companies on the Warsaw Stock Exchange are performing overall.

WIG20 Trading Hours

The WIG20’s trading hours, as is the case with the other indices traded at the Warsaw Stock Exchange, are from 8:00 to 17:00, Central European Time (GMT+2).
However, please note that trading hours on the Plus500 platform may differ.

What Is the WIG30?

In September of 2013, the WIG30 index was introduced. The WIG30 is traded on the Warsaw Stock Exchange along with the WIG20, and represents 30 blue-chip, highly-liquid Polish firms’ stocks. While originally, the WIG30 was planned to replace the more venerable WIG20, which began when only 24 firms were listed on the WSE as opposed to the hundreds today, this plan was scrapped.

Key differences between the two indices include the number of companies listed on each, as well as the fact that the WIG30 is an income index, meaning it includes dividends paid by companies in its value calculation.

What Influences the Price of the WIG20?

The WIG20, as a stock index, shares many characteristics with other global indices. Here are a few that, at times, are behind the WIG20's ups and downs:

• Share Prices of Constituent Companies: The WIG20 index reflects the performance of the 20 largest and most liquid companies on the Warsaw Stock Exchange, so changes in their share prices directly impact the index.
• Economic Conditions: Factors like inflation, interest rates, and overall gross domestic product (GDP) growth can influence the performance of companies in the index. Higher inflation and the attendant monetary and fiscal policies pursued by Poland's central bank, Narodowy Bank Polski, can impact corporate profits and investor sentiment, affecting share prices.
• Market Sentiment and Investor Behavior: Positive or negative investor sentiment can drive market trends. For instance, optimism about economic recovery or technological advancements can lead to increased buying activity, boosting the index. Alternatively, fears of a recession or even a stock market crash can have the opposite impact on the market.
• Sector Performance: The composition of the WIG20 includes various sectors. Performance variations in key sectors like finance, retail, and industry can significantly influence the overall index, especially if major companies in these sectors experience substantial gains or losses.

WIG20 Trading Strategies

A range of different trading strategies are available to the CFD trader wishing to enter the market with WIG20 CFDs. Your choice will depend on your personal trading goals and individual trading psychology. Here are a few strategies that you might want to incorporate into your CFD trading style:

• Trend Trading: Focuses on identifying and following market trends until signs of a reversal appear, aiming to enter early in a trend (bullish or bearish) and exit at the trend's end. Utilises technical indicators like moving averages and the Relative Strength Index (RSI) or fundamental analysis based on consistent financial performance.
• Range Trading: Looking for price fluctuations between support and resistance levels in consolidating markets. Traders open positions near support for long trades and near resistance for short trades, exiting as the price nears the opposite level. Uses technical indicators like RSI and stochastic oscillators to identify overbought and oversold conditions, with limit orders automating entry and exit around key price levels.
• Breakout Trading: Enters trades at the beginning of significant price movements when support or resistance levels are breached, aiming to capture substantial price movements following a breakout. Uses technical analysis indicators like volume indicators to assess breakout strength, and candlestick patterns to navigate market dynamics.
• News Trading: Makes trading decisions based on market news and events, aiming to anticipate and capitalise on market reactions to significant announcements or economic data. Relies heavily on fundamental analysis and extensive research, with less emphasis on technical analysis, requiring traders to stay informed and ready to act swiftly.

How to Trade the WIG20: Ways to Trade the Poland 20

There are multiple ways to enter the trading arena and gain exposure to the WIG20 index's market shifts:

• Trading WIG20 CFDs: Engaging in WIG20 CFD trading allows speculation on the WIG20 index’s price movements without the rights or responsibilities attached to owning the underlying assets or constituent stocks. CFDs allow for leverage, reducing the amount of capital needed to open a position and increasing potential profits, but also raising the risk of significant financial losses.
• Trading WIG20 Futures: Futures contracts allow trading on the WIG20 index at a set price on a predetermined future date. This is suitable for long-term predictions or hedging investments against losses. However, futures typically demand large margins, which might be challenging for everyday traders.
• Trading WIG20 Options: Options contracts provide the right, but not the obligation, to buy or sell the WIG20 at a predetermined price. The value of options declines as the expiration date approaches, making timing and strike price critical factors.
• Trading WIG20 Constituent Shares: A further option for those interested in the WIG20 is trading CFDs on listed shares. Examples include major Polish companies like PKN Orlen or PKO Bank Polski, which are two of the biggest companies listed on the WIG20 by market cap.

Steps to Buy and Sell WIG20 CFDs With Plus500

To start your WIG20 CFD trading journey, just follow these steps:

1. Open your Plus500 trading account and get verified.
2. Log in to the Plus500 trading platform.
3. Find the WIG20 index through the instrument category section or use the search bar.
4. Evaluate the current market conditions for the WIG20 to decide whether to go long (buy) or short (sell).
5. Determine your contract size and make use of available risk management tools as you deem necessary.
6. Click "Buy" or "Sell" to confirm your trade and monitor its progress.

Conclusion

Trading WIG20 CFDs provides a unique opportunity to gain exposure to Poland's leading stock index, representing twenty of the largest and most liquid companies on the Warsaw Stock Exchange. By following the outlined steps, traders can effectively enter the market, utilising various trading strategies to capture market movements.

Whether through trend trading, range trading, or other approaches, understanding the intricacies of the WIG20 index is crucial for informed and successful trading decisions. Finally, while CFD trading on the WIG20 and other instruments may offer potential benefits, the risk of significant losses is always present and must always be taken into account when entering the trading arena.

FAQs

What is the Poland 20 index?

The Poland 20 CFD is a financial instrument offered on the Plus500 platform that tracks the WIG20 index, a benchmark stock index in Poland on which the country’s 20 largest firms are listed.

Can I trade the WIG20 index with CFDs as a beginner?

Before engaging with CFD trading, you should study and be aware of the risk involved in CFD trading as well as practise your trading plan and familiarise yourself with the Plus500 Demo account. When you have a good understanding of the markets, you can trade WIG20 index CFDs and speculate on price movements without owning the underlying assets, using leverage and risk management tools available on trading platforms like Plus500.

How can I trade the WIG20 index?

You can trade the WIG20 index through CFDs, futures, options, or by trading constituent shares listed on the Warsaw Stock Exchange, with CFD trading offering leverage and flexibility in entering long or short positions.