What is the ASX 200 (AU200)
The abbreviation “ASX” stands for the Australian Securities Exchange, which is Australia’s primary stock exchange based in Sydney. The S&P/ASX 200, also known as Australia 200, is a benchmark institutional investable stock market index that was created in 2000. As the country’s most widely followed market indicator, the index serves as the de-facto measure of the value and performance of the nation’s equity market.
Maintained by Standard & Poor’s, its constituents are the 200 largest stocks listed on the Australian Securities Exchange chosen by float-adjusted market capitalisation. The index represents roughly 81 per cent of Australia’s total share market capitalisation.
Index trading is a practical addition to financial strategies because it helps to diversify an investment portfolio. As such, traders do not have to invest in separate company stocks. Instead, they can go for an index that already includes the country’s major businesses.
The ASX 200 index maintains its benchmark credibility by imposing high eligibility requirements on its listed companies. Aspiring firms must meet liquidity, market capitalisation and listing standards in order to be included in the index. The ASX 200 is rebalanced by a five-panel “Index Committee” quarterly, ensuring all the criteria are maintained.
Traders often choose the ASX 200 due to its exposure to significant market price fluctuations. The index is known for its volume and volatility, attracting numerous day traders looking to profit from short-term price movements. It also serves as the underlying asset for a wide range of derivative financial instruments.
ASX 200 trading hours
The ASX 200 companies are all listed on the Australian Securities Exchange that follows a typical Monday to Friday schedule. The main trading hours for the index are between 10:00-16:00 (GMT+10:00) five days a week.
If you choose to trade CFDs with Capital.com, you can follow the ASX 200 price in AUD live and trade the index between 22:01 – 21:00 (UTC), from Monday to Friday.
How is the ASX 200 Index calculated?
The ASX 200 is a capitalisation-weighted index. It means that a company’s contribution to the index is relative to its total market value, that is derived by multiplying its stock’s share price by the number of outstanding shares. This implies that companies with bigger market caps tend to have a bigger influence on the ASX 200’s share price.
The ASX 200 is also float-adjusted. It suggests that the absolute numerical contribution to the index is relative to the stock’s value at the float of the stock.
While the calculation includes a sum of the constituent stocks’ market capitalisation, the movement of the index only represents the changes in the share price and not the market capitalisation. To ensure that, an index divisor is used.
The divisor helps to maintain the index continuity by eliminating external influences not related directly to the market movement. For instance, if a company increases its market capitalisation by issuing new shares, the divisor is adjusted so that the value of the ASX 200 does not change.
ASX 200 performance history
The ASX 200 Index often tends to be considerably volatile in comparison to its UK and US counterparts, offering attractive trading opportunities. As with any trading, however, it is not without its risk.
The index was first published on the Australian Securities Exchange on March 31, 2000, with a starting index value of 3,133.3, equal to the value of the broader All Ordinaries Index at the time.
According to the historical ASX 200 Index performance chart, it fell to its all-time low of 2,753 on February 3, 2003. The index then gained a strong upside momentum, reaching 6,000 points for the first time on February 15, 2007. The same year, on October 7, its value peaked at 6,748, right before entering a downtrend. During the infamous financial crisis of 2008-2009, the ASX 200 shed in value significantly, falling to trade at 3,145 by the end of February 2009.
After hitting bottom in early 2009, with the exception of occasional, short-lived negative fluctuations, the index had been mainly in the uptrend for over a decade. The ASX 200 crossedthe 7,000 points level for the first time on January 16, 2020. On February 20, it traded as high as 7,162.5.
However, after reaching its record high, due to the Covid-19 pandemic and its implications on the Australian economy, the index has experienced lots of volatility, characterised by multiple price fluctuations. On March 23, 2020, the ASX 200 dropped as low as 4,546, ending the first quarter of the year trading at 5,076.
How to trade the ASX 200 CFDs
The ASX 200 Index is a great way to gain exposure to the Australian stock market without having to analyse the performance of individual companies. However, like any other stock index, the ASX 200 cannot be bought and sold like an equity.
One of the easiest and most popular ways to invest in the ASX 200 is through contracts for difference, or CFDs. A CFD is a type of contract, typically between a broker and a trader, where one party agrees to pay the other the difference in the value of a security, between the opening and closing of the trade. Therefore, when you trade the index using CFDs, you speculate on the direction of the underlying asset’s prices without actually owning it.
Investing in the ASX 200 CFDs allows you to trade the index in both directions; you can hold a long or short position, depending on whether you expect the price of an asset to rise or fall. For that, CFDs give you the opportunity to profit from both bullish and bearish price movements in the index.
CFDs allow trading on margin, providing you with greater liquidity and easier execution. However, note that CFDs are a leveraged product, which magnifies both profits and losses.
The ASX 200 Index has good volume and volatility as it is made up of a wide cross-section of liquid trading instruments. It typically offers a high degree of liquidity, tight spreads and long trading hours, making it popular with CFD traders around the world.
How are ASX 200 companies selected?
Constituents are selected by a committee from Standard & Poor’s (S&P) and the Australian Securities Exchange (ASX).
All companies listed on the Australian Securities Exchange (ASX) are ranked by market capitalisation. Exchange traded funds (ETFs) and Listed Investment Companies (LICs) are ignored. The top 200 ASX stocks that meet minimum volume and investment benchmarks then become eligible for inclusion in the index.
Rebalances are conducted quarterly in March, June, September and December. If a significant event occurs (e.g. delisting, merger, etc.) an intra-quarter rebalance may be conducted. A minimum of two business days’ notice is given to the market.