Nikkei 225 Trading
The Nikkei (Nikkei heikin kabuki) 225 is one of the most popular trading indices in Australia and across the world. It is also known as the Japan 225, and is the stock market index for the Tokyo Stock Exchange (TSE). The Nikkei was first calculated in the 1950 (retroactive to May 1949) and is the most widely quoted average of Japanese stocks, today. It is calculated on a daily basis by the Nihon Keizai Shimbun (Nikkei) newspaper.
The prominent nature of the index allows many profitable products to be linked to the Nikkei 225 stocks, which is an indicator of the economic situation and movement in Japan. The Nikkei as the US’s Dow Jones and many ASX indices, it is a price weighted index, and consists of 225 large, publicly-owned Japanese companies from an array of industries. This index provides Australian investors and traders with a powerful outlook on investment sentiments towards Japanese equities.
Originally called the ‘Nikkei Dow Jones Stock Average’ from 1975 to 1985, initially it was established as part of the rebuilding of Japans industrial sector, following World War II. The Tokyo Stock Exchange was established in 1878, and during the Second World War, the Japanese government joined the Tokyo Stock Exchange with a few other leading companies at the time to form the Japanese Stock Exchange (JSE). Nearing the end of WWII in the latter part of August 1945 the JSE was closed down. In May of 1946, the Toyo Stock Exchange re-opened under the aegis of the new Securities Exchange Act.
In the late 1980’s, Japan experienced an economic cycle that saw a rapid increase (50%) in the Japanese yen’s appreciation, to counter act a possible recession the government used fiscal and monetary stimuli. Land value as well as stock prices fluctuated during this time. These assets tripled in value between 1985-1989, when the TSE accounted for 60% of the global stock market capitalization. These strong movements sent shock waves across Australia and around the world.
In early 1990 the bubble burst and the first in line to be affected was the JPY that fell to one-third of its value that year. Up till October 2008, the Nikkei traded below 7,000 seeing an 80% decline from it’s high in December of 1989. With the assistance of the Bank of Japan and economic injection provide by the government the Nikkei rebound between June 2012 and June 2015, and still below the 50% high of 1989.
The Nikkei 225 is comprised of 225 stocks that are selected from Japan’s top performing blue-chip companies. These constituents can be changed based on an annual review. Once it has been decided that a company will no longer be a part of the index composition, it is deleted from the index and a new one is added following a procedure called ‘Extraordinary Replacement’. Once a year, in September a selection is conducted based on sector balance and company liquidity. The Nikkei has large 6 sector categories that are consolidated from the 36 Nikkei industrial classifications. In comparison, the Australian share market is broken up into 11 Sectors, 24 Industry Groups, 68 Industries, and 157 Sub-Industries.
Top 5 companies represented by Nikkei 225 and their market capital (USD)
|Nippon Telegraph & Telephone||91.3B|
Factors that influence the overall index price
Due to its history, the Nikkei 225 index is famous for being the world’s most volatile traded index. It is prone to sharp market moves – plunging, rebounding and recovering on a regular basis. Tying the price of the Nikkei to the USA is mostly due to the Japans exports to the United States. When trading the Nikkei 225 it is always wise to keep your eye on the US Markets, as what influences the USA will most likely have a direct influence on the Nikkei. Modern traders often approach Nikkei 225 trading in parallel to the movements of the US markers and its indices.
The Nikkei index is extremely sensitive to global events, such as political unrest, war, economical and financial news as well as natural disasters. Economic benchmarks such as unemployment rate, rates increases, GDP figures and job creation are major influences, especially these changes happening in the Japan and United States. Changes to the Nikkei index can also cause significant shifts to local Australian markets.
Nikkei Trading information
- The Nikkei trading hours Monday to Friday 23:46 – 06:24 & 07:31 – 17:54 (GMT)
- The Nikkei trading hours overlap with Australian business hours
- The Nikkei index moves in increments of 5.00
- The margin requirement 2%
- Leverage is 50:1
- The minimum trade size is 100
- The Nikkei’s currency is the Japanese Yen
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