Euro Currency Index

Euro Currency Index brokers give UK traders access to a speculative derivative on one of the world’s most important currencies. The index tracks the performance of the Euro compared to several other major currencies, including the USD and GBP. This guide will explain how the Euro Currency Index works, its constitution, background and price drivers. We also explain how to trade the Euro Currency Index.

Euro Currency Index Explained

The relative performance of the Euro (EUR) against other major currencies is tracked by the Euro Currency Index. Currencies from major economies, including the USA (USD), Japan (JPY) and the UK (GBP), constitute the makeup of this index.

Five main ticker symbols are used to represent this index, EXY, EURX, ECX, EUR_I. EXY, and EURX are the most common. With that said, brokers may have their own symbols for the index on their platforms.

UK investors looking to trade the Euro Currency Index can do so through multiple vehicles, including CFDs, options and ETFs.

How Does The Euro Currency Index Work?

The Euro Currency Index tracks the Euro’s performance against a basket of other major currencies, typically GBP, USD, JPY, CHF and SEK.

Most brokers offer the standard set of currencies, but some may offer their own custom Euro Currency Index, making some changes to the constituent currencies’ weightings and calculation.

For example, IFC Markets offers its own index that is based on USD, JPY, AUD, CHF and CAD.

Typical weightings:

Live Chart

Background

The first Euro Currency Index was launched by Stooq.com in 2004. This index, EUR_I, had equal weighting for its four constituent currencies, USD, GBP, JPY and CHF.

Dow Jones later released two of its own Euro Currency Indices in 2004, the DJEURO and DJEURO5. While no longer tracked, these were indices with baskets of 10 and 5 currencies respectively.

The EXY was released by the New York Board of Trade (NYBOT) in 2006, made up of the standard set of weightings given above. The Intercontinental Exchange (ICE) offered options and futures contracts on this index before discontinuing it in 2011.

What Moves The Price Of The Euro Currency Index?

The Euro Currency Index is an indicator of the Euro’s relative performance compared to other major international currencies. As such, investors can use the economics behind the index and each constituent country to predict performance and capitalise on fluctuations.

Some of the most significant factors that affect the index’s performance include:

Eurozone

The Euro is the primary currency of the Eurozone. Therefore, the economic health of the area will have a direct impact on the movement of the Euro Currency Index.

This covers a large area, spanning multiple countries, and thus can be a complicated matter to understand. Looking at the major countries’ economic performances (Germany, France, Italy etc) can be a useful indicator of how the Euro Currency Index will move as they tend to have the biggest impact.

You will want to take into account the economic growth, inflation, stock market performance and politics of these regions. All can influence the value of the Euro on the world stage.

USA & UK

The USA and UK currencies both take a large percentage of influence on the Euro Currency Index’s weighting, accounting for around 30% each. As such, the performance of these economies will be a good determinant of price movement when speculating at Euro Currency Index brokers.

If these currencies are getting stronger compared to the Euro, the index will likely fall in price. Having a good handle on the strength of these and other constituent currencies will help you predict the movement of the Euro Currency Index.

Global Events

With the world’s economies so intermingled due to the increase of globalisation, local changes in economic situations can be felt the world over. For example, the effects of the Russia-Ukraine war were strong on the Euro, causing a major crash in the EXY, with a dip down to 96.93 points in September 2022.

Keeping up to date with global events becomes ever more important as the world integrates further.

Comparing Euro Currency Index Brokers

To profit from Euro Currency Index performance speculation, you will need to choose an online broker. There are many firms available to UK traders looking to trade the Euro Currency Index. Below, we cover the key factors that should be taken into consideration.

Products

The Euro Currency Index can be represented by several different financial products, whether contracts for difference (CFDs), options, futures or ETFs.

The type of product you want to trade will be a major determinant for the brokers you consider. Pepperstone, for example, offers leveraged CFDs, allowing traders to increase their profit-making potential.

ETFs offer a more diversified way of investing, allowing you to spread your risk.

Constituents

Unlike in the past, there is no single dominant or main Euro Currency Index that all brokers use. The standard set of constituent and weightings developed by the NYBOT is still widely used.

However, many companies offer custom Euro Currency Index products with different constituents or weightings. For example, CMC Markets has its own index that includes alternative components like the EUR/SGD pair.

CMC Markes Euro Currency Index Constitution

Platform

More generally, choosing a Euro Currency Index broker that offers a platform that suits you is important. The platform is where you will spend your time opening and closing positions, performing analysis, and researching currencies. As such, the features that the platform provides will be key to ensuring you have a productive and effective investing experience.

Some Euro Currency Index brokers will provide technically focused, popular platforms like MetaTrader 4, MetaTrader 5 or TradingView, while others may have their own bespoke platforms designed for user-friendliness or social trading.

Top Euro Currency Index brokers will offer multiple platform choices and demo accounts. Demo accounts allow you to practise using a trading platform with virtual currency before investing personal capital.

Fees

Fees can quickly eat away at profits, so finding a Euro Currency Index broker that gives you the features to maximise profits while minimising fees is important.

Fees come in many different forms, including deposit/withdrawal fees, commissions, spreads, holding fees, subscription services/freemium models and more. Each brokerage may have a different fee structure that should be carefully weighed against your intended use of the firm.

Pepperstone, for example, offers the Euro Currency Index CFD with a minimum spread of 0.6 pips and 1:5 leverage for UK traders.

Base Currency

UK traders will want to find a broker that allows GBP as an account base currency. This will mean there will be no foreign exchange fees when depositing or withdrawing from the account.

Advantages Of Trading The Euro Currency Index

• Varied Instruments – The Euro Currency Index’s performance can be speculated through several products, including CFDs, futures, options and ETFs.
• Diversity – Brokers may offer different index makeups and weightings, giving traders options for the constitution of the Euro Currency Index. Some will have more diversified indices, while others may be simpler and easier to predict.
• Information – There is a lot of information available about the Euro and the constituent currencies as they are all highly popular currencies.

Disadvantages Of Trading The Euro Currency Index Brokers

• Unpopular – Despite the Euro being one of the world’s leading currencies, the Euro Currency Index is not as popular an instrument. This means there are not as many trustworthy brokers offering the index as a legitimate financial product.
• Composition – While Euro Currency Index brokers can offer differently constituted alternatives, the standard currencies making up the index are limited. This may lead to the index not accurately representing the Euro’s overall global performance.
• Weighting – Similar to the composition, the weighting is fairly heavily skewed to the GBP and USD. The standard weightings were developed before the major events of the 2010s and early 2020s. These include the likes of Brexit and the potential Eastern shift away from the USD. As such, the weighting may misrepresent the actual impact these currencies have on the Euro.

Opening Hours

Euro Currency Index brokers offer different open trading hours as there isn’t necessarily a single centralised exchange from which the brokers obtain their index data. As such, look out for a firm that provides the opening hours that suit you best.

For example, CMC Markets allow traders to invest in its Euro Currency Index CFD from 00:00 to 22:00 GMT, Monday through Friday.

Bottom Line On The Euro Currency Index

Euro Currency Index brokers allow traders to speculate on the performance of one of the world’s most important currencies through its comparative strength against other major currencies. This can provide a more diversified way to speculate on the Euro itself than a single forex pair. Furthermore, there is a variety of Euro Currency Index constitutions out there, with many online brokers adapting the formula to better capture the currency’s performance, making it an interesting product for UK traders.

FAQ

Article Sources

CMC Markets Euro Index

Pepperstone Currency Index CFDs