Nikkei 225 Trading
The Nikkei (Nikkei heikin kabuki) 225 also known as the Japan 225, is the stock market index for the Tokyo Stock Exchange (TSE) was first calculated in 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, which is an indicator of the economic situation and movement in Japan. The Nikkei, like the US’s Dow Jones, is a price-weighted index and consists of 225 large, publicly-owned Japanese companies from an array of industries. This offers investors and traders alike an outlook on investment sentiments towards Japanese equities.
Originally called the ‘Nikkei Dow Jones Stock Average’ from 1975 to 1985, it was initially established as part of the rebuilding of Japan’s 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 Tokyo Stock Exchange re-opened under the aegis of the new Securities Exchange Act.
In the late 1980s, Japan experienced an economic cycle that saw a rapid increase (50%) in the Japanese yen’s value. To counteract a possible recession the government used fiscal and monetary stimuli. Land value as well as stock prices fluctuated during this time and it was recorded that during 1985-1989 these assets tripled in value, and the TSE accounted for 60% of global stock market capitalisation.
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 until 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 fiscal injections provided by the government, the Nikkei rebounded between June 2012 and June 2015, but is still below the 50% high of 1989.
The Nikkei 225 is comprised of 225 stocks that are selected from among Japan’s top performing blue-chip companies. Based on annual review these constituents can be changed. 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 6 sector categories that are consolidated from the 36 Nikkei industrial classifications.
Top 5 companies represented by Nikkei 225 and their market capitalization (USD)
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Factors that influence the overall index price
Due to its history, the Nikkei 225 index has become famous for being a most volatile traded index as it is prone to sharp market moves, plunging, rebounding and recovering. Tying the price of the Nikkei to the USD is mostly due to Japan’s exports to the United States. When trading the Nikkei 225 it is always wise to keep your eye on US Markets, as what influences the USD will most likely have a direct influence on the Nikkei. In addition to that, Nikkei 225 trading needs to run parallel to traders who follow the movements of the US markers as well as their 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, interest rates, GDP figures and job creation are major influences, especially these changes happen in Japan and the United States. Thus it would be wise to follow the dynamics of the S&P 500 and the Dollar Index.
Nikkei Trading information
- Nikkei trading hours Monday to Friday 23:46 – 06:24 & 07:31 – 17:54 (GMT)
- The Nikkei index moves in increments of 5.00
- Leverage provided
- The minimum trade size is 100
- The Nikkei’s currency is the Japanese Yen
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