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Trading the Nikkei 225

The Nikkei 225 index is still widely regarded as one of the key measures of stock market activity in Asia, mainly because of the sheer size of the Japanese market and economy.

Like the Dow Jones Industrial Average, the Nikkei is price-weighted, meaning that companies are weighted according to their share price rather than their total free float market cap.

The price is driven by the shares of 225 of Japan’s leading companies, including many household names: Honda, Nikon, Nissan, Olympus, Sony and Suzuki are all constituents, but you also have less well known but significant operators in the world of insurance, banking and chemicals in this index. The Nikkei is a good barometer of the price action in Tokyo shares. It can also be affected by fluctuations in the yen, as many Japanese companies are big exporters, with substantial overseas interests, and hence can suffer if the yen gets too expensive.

The Japanese market is big, and major institutions like pension funds hold large quantities of listed Japanese stocks, often for years. However, there are also many active players in the Japanese market, including foreign funds. The high levels of liquidity means gapping in prices should be less of a problem than in smaller markets. Japanese monetary policy decisions can be a big driver of share prices as fears about the future of Japan’s economy persist. The Nikkei probably saw one of its worst periods of volatility as it was sold off at the end of the infamous Japanese bubble in 1989-90. It has never recovered from this.

You can trade the Nikkei 225 in a number of different ways, the most popular of which are as a futures or options contract, an Exchange Traded Fund, or as a Contract for Difference.

CME Group has a suite of futures products based on the price of the Nikkei 225, and it is easier than ever for an individual to open an account with an approved broker to trade CME Group futures – simply ensure you have a futures-enabled trading account. You can find a list of futures brokers here or find more educational resources on The Armchair Trader on how to trade futures on the Nikkei 225.

Many other tracker products follow the Nikkei. Although the Chinese economy is now larger than Japan’s, the Japanese listed shares market dwarfs China’s, and there are few limitations on foreign investors. Hence, for traders interested in Asian markets, the Nikkei is the stand out first choice. If you’re a UK resident, you’re also able to trade the index through a tax-free spread betting broker.

Latest Nikkei 225 News

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