BEL 20 index: Explained | TIOmarkets
BY TIO Staff
|July 1, 2024The BEL 20 is a benchmark stock market index used in Belgium. It is composed of the 20 most significant companies listed on the Euronext Brussels, which is the primary stock exchange in Belgium. The BEL 20 serves as a barometer for the overall health and performance of the Belgian economy, and is widely used by investors and analysts as a key indicator of market trends.
The index is calculated based on the market capitalization of its constituent companies, with adjustments made for free float and trading volume. This means that the index reflects not only the share prices of the companies, but also the number of shares available for trading and the volume of shares traded. The index is reviewed and rebalanced annually to ensure it remains representative of the market.
History of the BEL 20
The BEL 20 was launched on March 18, 1991, with a base value of 1,000. Since then, it has seen a number of changes in its composition and calculation methodology. The index initially included only Belgian companies, but in 2005, it was opened up to include companies from other European countries that have a significant presence in Belgium.
Over the years, the BEL 20 has experienced periods of growth and decline, reflecting the ups and downs of the Belgian economy and the global financial markets. Despite these fluctuations, the index has remained a reliable benchmark for the Belgian stock market and a key tool for investors and analysts.
Significant Events in the BEL 20's History
One of the most significant events in the history of the BEL 20 was the global financial crisis of 2008. The index, like many others around the world, experienced a sharp decline as a result of the crisis. However, it recovered in the following years, demonstrating the resilience of the Belgian economy.
Another important event was the inclusion of non-Belgian companies in the index in 2005. This move was seen as a reflection of the increasing globalization of the financial markets and the growing importance of multinational companies in the Belgian economy.
Constituents of the BEL 20
The BEL 20 is composed of the 20 most significant companies listed on the Euronext Brussels. These companies are selected based on their market capitalization, free float, and trading volume. The composition of the index is reviewed and rebalanced annually to ensure it remains representative of the market.
While the BEL 20 includes companies from a variety of sectors, some sectors are more heavily represented than others. For example, the financial sector has traditionally been a major component of the index, reflecting the importance of this sector in the Belgian economy. Other significant sectors include the consumer goods and services sector, and the industrial sector.
Selection Criteria for the BEL 20
The selection of companies for inclusion in the BEL 20 is based on a number of criteria. First and foremost, a company must be listed on the Euronext Brussels. In addition, it must have a high market capitalization, a large free float, and a high trading volume.
The market capitalization of a company is calculated by multiplying the number of its outstanding shares by the current share price. The free float of a company refers to the number of shares that are available for trading by the public. The trading volume of a company is the number of shares that are traded on a daily basis.
Weighting of the BEL 20
The BEL 20 is a market capitalization-weighted index, which means that the companies with the largest market capitalization have the greatest influence on the index's value. However, the index also takes into account the free float and trading volume of the companies, which can affect their weighting in the index.
The weighting of a company in the index is determined by multiplying its market capitalization by its free float factor and its liquidity factor. The free float factor is the proportion of the company's shares that are available for trading, while the liquidity factor is a measure of the company's trading volume.
Performance of the BEL 20
The performance of the BEL 20 is closely watched by investors and analysts as a key indicator of the health and direction of the Belgian economy. The index's performance is influenced by a variety of factors, including the performance of its constituent companies, economic conditions in Belgium and globally, and investor sentiment.
Like all stock market indices, the BEL 20 can be volatile, with its value fluctuating in response to changes in the market. However, over the long term, the index has shown a tendency to rise, reflecting the growth of the Belgian economy and the success of its leading companies.
Factors Influencing the BEL 20's Performance
There are many factors that can influence the performance of the BEL 20. One of the most important is the performance of its constituent companies. If these companies are doing well, with strong earnings and good prospects, this can boost the index. Conversely, if these companies are struggling, this can drag down the index.
Other factors that can affect the index's performance include economic conditions in Belgium and globally, political events, and changes in investor sentiment. For example, a strong Belgian economy can boost the index, while a weak economy can weigh it down. Similarly, positive investor sentiment can drive the index higher, while negative sentiment can cause it to fall.
Tracking the BEL 20's Performance
Investors and analysts track the performance of the BEL 20 using a variety of tools and techniques. One of the most common is to look at the index's price chart, which shows the index's value over time. This can provide a visual representation of the index's performance and help identify trends and patterns.
Another common method is to compare the performance of the BEL 20 with other indices, such as the Euro Stoxx 50 or the S&P 500. This can provide a sense of how the Belgian market is performing relative to other markets. Additionally, many investors and analysts use technical analysis, which involves studying price patterns and other market data to predict future movements in the index.
Investing in the BEL 20
Investing in the BEL 20 can be an effective way to gain exposure to the Belgian market and diversify an investment portfolio. There are several ways to invest in the BEL 20, including buying shares in the constituent companies, investing in a mutual fund or exchange-traded fund (ETF) that tracks the index, or trading futures and options contracts based on the index.
Investing in the BEL 20 can offer a number of benefits, including the potential for high returns, diversification, and the opportunity to invest in some of Belgium's most successful companies. However, like all investments, it also carries risks, and it's important to do your research and consider your financial goals and risk tolerance before investing.
Methods of Investing in the BEL 20
There are several methods of investing in the BEL 20, each with its own advantages and disadvantages. One of the most direct ways is to buy shares in the constituent companies. This allows you to own a piece of these companies and benefit from their success. However, it also exposes you to the risks associated with these companies, and it can be time-consuming and costly to buy shares in all 20 companies.
Another method is to invest in a mutual fund or ETF that tracks the BEL 20. This allows you to gain exposure to all of the companies in the index with a single investment. These funds are managed by professional investment managers, who take care of the day-to-day management of the fund. However, these funds charge fees, which can eat into your returns.
Risks and Rewards of Investing in the BEL 20
Investing in the BEL 20 can offer a number of rewards, including the potential for high returns. The index has historically performed well, with a long-term trend of growth. In addition, investing in the BEL 20 can provide diversification, as it includes companies from a variety of sectors.
However, investing in the BEL 20 also carries risks. Like all stock market investments, the value of an investment in the BEL 20 can go down as well as up. The index can be volatile, with its value fluctuating in response to changes in the market. In addition, while the index includes companies from a variety of sectors, it is still concentrated in a single country, which can expose you to country-specific risks.
Conclusion
The BEL 20 is a key benchmark for the Belgian stock market and a valuable tool for investors and analysts. It provides a snapshot of the performance of the Belgian economy and offers a way to invest in some of Belgium's most successful companies. Whether you're a seasoned investor or just starting out, understanding the BEL 20 can help you make informed investment decisions.
However, like all investments, investing in the BEL 20 carries risks, and it's important to do your research and consider your financial goals and risk tolerance before investing. Always consult with a financial advisor or do your own thorough research before making investment decisions.
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