Forex Trading

What Is the Nikkei 225 Index and How Can You Trade It? IG International

what is the nikkei 225

The Nikkei 225 is a popular market to trade because of its deep liquidity and low spreads. You’re also able to get exposure to an entire economy or sector with just a single position. The Nikkei 225 index offers traders and investors an avenue to get exposure to the entire Japanese economy in a single position.

what is the nikkei 225

The Nikkei, also known as the Nikkei 225, is a stock index for the Tokyo Stock Exchange. It comprises 225 of the largest, most liquid companies listed on the Tokyo Stock Exchange across a diverse range of sectors. The Nikkei, also known as the Nikkei 225, is Japan’s most prominent stock index and serves as a crucial barometer of the country’s economic health.

Constituent Stocks

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The tech industry is the largest sector weighted on the Nikkei index, followed by other industries involved in consumer products, transportation and utilities. The most significant crash in the history of the Nikkei occurred in the early 1990s when the Japanese asset https://www.wallstreetacademy.net/ price bubble burst. These criteria ensure that the index is representative of the Japanese stock market and is easily investable for both domestic and international investors. The Nikkei index comprises 225 blue-chip companies listed on the Tokyo Stock Exchange.

Trade on individual Nikkei 225 stocks

A price-weighted index assigns weight to each component company based on its stock price. This means that companies with higher stock prices have a more significant influence on the index’s value, regardless of their total market capitalization. The Nikkei Index, or Nikkei 225, uses a unique calculation methodology to determine its value.

  1. Alternatively, you’ll trade via futures which have wider spreads but no overnight fees using our CFD trading account.
  2. The Nikkei index (also referred to as the Nikkei 225) is a stock market that lists the 225 largest companies based in Japan.
  3. With us, you will use CFDs to buy or sell contracts to exchange the price difference of the Japan 225 between the opening and closing position.
  4. Nikkei Inc. has developed and calculated its own indexes from various perspective, looking at changes in society and markets.

Discover the range of markets and learn how they work – with IG Academy’s online course. Most European traders seek to diversify their portfolio, and the Nikkei 225 tends to be the preferred outlet because the Japanese economy is one of the biggest across the globe. Since the Nikkei index follows the Japanese economy closely, you can monitor the economic and political climate of the country to predict how the index will move. Ask a question about your financial situation providing as much detail as possible.

Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs. We follow strict ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. This team of experts helps Finance Strategists maintain the highest level of accuracy and professionalism possible. Our team of reviewers are established professionals with decades of experience in areas of personal finance and hold many advanced degrees and certifications. These policies, which included aggressive monetary easing, fiscal stimulus, and structural reforms, were designed to break Japan out of its decades-long deflationary cycle.

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Finance Strategists has an advertising relationship with some of the companies included on this website. We may earn a commission when you click on a link or make a purchase through the links on our site. All of our content is based on objective analysis, and the opinions are our own. Investing in the Nikkei provides exposure to the Japanese economy and offers diversification benefits, given Japan’s unique economic and demographic characteristics. The healthcare sector is another crucial component of the Nikkei index, with leading pharmaceutical companies like Takeda Pharmaceutical and Daiichi Sankyo featuring in the index.

On the reward side, the Nikkei offers exposure to some of the world’s largest and most innovative companies and has shown strong growth potential in recent years. A weaker Yen generally boosts the Nikkei because it makes Japanese exports more competitive, thereby improving the earnings prospects of Japanese multinational companies. For example, the introduction of “Abenomics” in 2012, a set of economic policies implemented by former Prime Minister Shinzo Abe, helped to drive a multi-year bull market in the Nikkei.

Our analyst articles offer in-depth insights on the Nikkei 225 and its constituent stocks to inform your trading. The Nikkei 225 is the Japanese stock market index that features the most prominent businesses in the Japanese economy. In this piece, we explore what the Nikkei 225 represents, its history, the companies that constitute the index, and how to approach trading it. You can trade this on the spot price, which is closest to the underlying price with low spreads, but includes overnight fees. Alternatively, you’ll trade via futures which have wider spreads but no overnight fees using our CFD trading account. Investing in the Nikkei offers exposure to major Japanese industries and diversification, albeit with unique risks tied to Japan’s economy and the index’s price-weighted nature.

The Nikkei is influenced by a variety of factors, including Japanese economic policies, global economic events, fluctuations in the Japanese Yen, and the performance of its constituent companies. You can invest in the Nikkei by purchasing shares of individual companies in the index, buying a Nikkei index fund or exchange-traded fund (ETF), or trading futures and options contracts based on the Nikkei. The Nikkei, like all major indices, is also influenced by global economic events. The global financial crisis of 2008 caused a sharp fall in the Nikkei, reflecting the severe economic downturn that followed. The performance of the Nikkei has often diverged from other major global indices. For example, during the 1980s, while other major indices saw moderate growth, the Nikkei surged due to the asset price bubble.

Nikkei 225: what is it and how do you trade it?

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The index hit an all-time high in December 1989 at the height of the Japanese asset price bubble, reaching a value of almost 39,000, but as of February 2020 has never regained those heights. Indeed, since 2000 the index has experienced double digit year-on-year losses seven times, compared to just two times for the Dow Jones. The underlines not only the difference in long-term performance of the Nikkei 225 and other global indices but also the level of stock volatility that the Japanese index can exhibit. The shares included in it are weighted according to price; the index level represents the average of the shares included in it. Dividend payments and stock market turnover are not considered when calculating the index.

The technology sector is well-represented in the Nikkei index, with global giants like Sony and Panasonic as well as other innovative tech companies making up a significant portion of the index. In 1943, during the Second World War, the Japanese government combined the TSE with five others to form a single Japanese Stock Exchange. The Tokyo Stock Exchange re-opened on May 16, 1949, under the aegis of the Securities Exchange Act. IG International Limited is part of the IG Group and its ultimate parent company is IG Group Holdings Plc.

The construction sector also plays a significant role in the index, with prominent companies like Kajima Corporation and Obayashi Corporation contributing to the sector’s performance in the index. Market capitalization is another essential criterion for inclusion in the Nikkei index. Companies with a larger market capitalization are typically more stable, making them ideal for representing the broader market. The following chart shows the history of the Nikkei 225 in the 21st century, highlighting the major fundamental events that shaped its price. The Tokyo Price Index—frequently referred to as TOPIX—is another widely followed index on the Tokyo Stock Exchange. While the Nikkei is an index of 225 selected stocks from the TSE, the TOPIX is an index that includes all the stocks in the TSE.

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