Trade the ASX 200 Online | FXTRADING.com - International

Trade the ASX 200 Online

Trade the ASX 200

FXTRADING.com sits at the heart of Australia’s financial hub. Trade the ASX 200 via our AUS200 CFD (contract for difference) and experience our superior trading infrastructure on the world renowned MT4 trading terminal.

A Primer on the ASX 200

The S&P/ASX 200 was launched in March 2000 and is maintained by Standard & Poor’s group. Traders frequently refer to it as the ASX 200 and is considered as the main benchmark for Australian shares.

  • Represents the 200 largest, listed stocks in Australia
  • The ASX 200 is a float-adjusted market capitalisation index
  • It is made up of 11 broad market sectors
  • Financials is currently the largest sector
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Represents the 200 largest, Listed Stocks in Australia
Seen as the main benchmark for Australian equities, the ASX 200 contains the largest 200 stocks listed on the ASX which meet strict liquidity and market-cap requirements of the exchange.

Each quarter the ASX 200 is adjust which results in some stocks entering and leaving the index, in order to maintain its high standard of equity selection.

The ASX 200 is a Float-Adjusted Market Capitalisation Index
Being a market-cap weighted index, stocks with the highest market capitalisation make a greater impact on the index. This is a popular method for indices and has also been used on the S&P500 and Nasdaq-100.

Contains 11 Broad Market Sectors
The 200 stocks can be grouped together into broad sectors which allow share investors to drill down from the index level using a top-down approach. Whilst investors use this information to help select outperforming equities, it can also be useful for index traders to track as the more sectors that are rising, the healthier the underlying trend of the ASX 200 is perceived to be.

  • Consumer Discretionary
  • Consumer Staples
  • Energy
  • Financials
  • Health Care
  • Industrials
  • Information Technology (IT)
  • Materials
  • Real Estate
  • Communication Services
  • Utilities


Financials is Currently the Largest Sector
As of June 2020, the Financial sector accounted for 27.3% of the ASX 200 alone. And with materials accounting for 19.5% the two largest sectors account for nearly 50% of the index (or 46.8% to be precise).

How Can You Trade the ASX 200 Index?

FXTRADING.com offer the ability to trade the ASX 200 via a form of derivate called a CFD (contract for difference). A CFD is a leveraged product which has much lower margin requirements than a futures contract. They do not require you to enter a contract of any sort or own the underlying instrument.

Moreover, CFDs allow you to trade both long and short which is a luxury not always possible on the futures market.

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Long example: ASX 200 (AUS200)
A trader buys 5 contracts of the AUS200 CFD at AUD 6,000

  • If the price rises to 6,500 the trader could exit for a profit around $2,500
    • (# contracts x contract size) x (exit price – entry)
    • (5 x 1) x (6,500 – 6,000)
  • If the price falls to 5,750 the trader could exit for a loss around -$1,250
    • (# contracts x contract size) x (exit price – entry)
    • (5 x 1) x (5,750 – 6,000)
  • A 1% margin requirement with 100:1 leverage requires AUD $300 of capital
    • (# contracts x contract size x price) / leverage
    • (5 x 1 x 6,000) / 100


Short example: ASX 200 (AUS200 CFD)
A trader sells 10 contracts of the AUS200 CFD at 5,000

  • If the index falls to 4,500 the trader could exit for a profit around $5,000
    • (# contracts x contract size) x (entry – exit price)
    • (10 x 1) x (5,000 – 4,500)
  • If the index rises to 5,250 the trader could exit for a loss of around -$2,500
    • (# contracts x contract size) x (entry – exit price)
    • (5 x 1) x (5,000 – 5,250)
  • A 1% margin requirement with 100:1 leverage requires $500 of capital
    • (# contracts x contract size x price) / leverage
    • (5 x 1 x 5,000) / 100


Costs associated With CFDs

Spread:
The spread is a small transaction cost applied at the time of trade entry. It is the difference between the bid and ask price, and the width of the spread is dictated by the amount of liquidity available.

You can see the spread in the deal ticket window and the market watch table, and would look something along the lines of this:

In this example, the spread is 1 index point (equivalent to $1 Australian dollar).

AUS200
Bid / Ask:
6075.50 / 6076.50

In the next example, the spread is 2.5 index points (equivalent to $2.50 Australian dollar).

AUS200
Bid / Ask:
6075.00 / 6077.50

The spread is variable and we would typically expect the it to be tighter (lower cost) during high volume sessions such as Europe or New York, as this is when the most liquidity is available. However, we have some of the tightest spreads in the industry so transaction costs are kept to a minimum.

Swaps:
Each day at market close, daily swaps are calculated and applied to open positions. Swaps can either be a credit or a debit to the account, which depends upon whether the open position is long or short the market and what the underlying interbank rate is for the country.

The swap for the ASX 200 (AUS200 CFD) is calculated in Australian dollars and derived from the RBA’s interbank rate (Reserve Bank of Australia’s overnight rate).

Market Drivers for the ASX 200

  • Global Equities
  • Reserve Bank of Australia (RBA)
  • Financials
  • Economic data
  • Large-cap stocks or sectors
  • Risk-appetite
  • Earnings Season
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Global Equities
It is not uncommon to see the ASX enjoy a positive start to the day if US equities closed higher in the preceding session. However, it is not a hard and fast rule as domestic drivers could overtake such sentiment if perceived as important enough by traders. But if domestic drivers are on the backburner then the US can lead Australian equities.

Still, whilst the ASX 200 shares a strong, positive correlation with the S&P 500, it has underperformed its American counterpart since the GFC.

The ASX doesn’t just listen to the US, as sentiment across the APAC region during the Asia session can also drive the ASX 200. For example, if traders see news that China is stimulating its economy, it can add a tailwind to risk sentiment and send the ASX 200 higher.

Reserve Bank of Australia (RBA)
The RBA is the Central Bank of Australia and their policy decisions, or even talk of action can directly impact Australian shares, bond prices and the Australian dollar.

A dovish policy, such as low interest rates or QE (quantitative easing) tends to be a net positive for the ASX 200 whereas a hawkish policy (rising rates) could weigh on equities. That said, with rates so low even a few rate hikes from record low rates would unlikely topple the share market.

Economic Data
Equity investors are obsessed with growth and its likely direction. If they expect growth to expand, this tends to be good for equity markets and indices can rise. Conversely, if they suspect growth will falter, it can weigh on equity markets. This is why investors pay close attention to macro-economic data as it can provide a lead on which direction growth is more likely to be in the months ahead.

In particular, they pay attention to leading indicators such as PMI survey. If purchase managers are purchasing goods, it shows demand early in the supply chain which suggests growth an inflation could expand.

AiGroup are an Australian company which provide detailed PMI surveys on manufacturing, construction and services, whilst Markit Economics are an overseas firm who also supply detailed reports to investors.

Alongside leading indicators, investors also keep tabs on employment reports, consumer sentiment, retail sales and industrial production for a broader view of potential GDP.

Large-cap Equities or Sectors
With the Financials and Materials sector accounting for nearly 50% of the index, then ASX 200 index traders may want to track some of the largest stocks within those sectors. Commonwealth Bank currently has the largest market capitalisation in the index, and BHP Group ad Rio Tinto are the largest stocks in the materials sector.

Risk-Appetite
Appetite for risk can be seen across multiple markets, and the potency of ‘risk-on’ or ‘risk-off’ can be measured by how volatile and correlated certain asset classes become. For example, in times of extreme stress we would expect to see equities and bond yields fall whilst gold and the Japanese yen rise, and at levels of volatility far beyond their typical daily ranges. The reverse is also true; if risk on suddenly appears, equities and bond yields can rise sharply whilst gold and the yen fall in tandem.

There will be occasions where appetite for risk will be driven by domestic factors. Perhaps the financials sector can weigh on the index after a slew of bad earnings, or a royal commission into the sector.

Earnings Season
Also called reporting season, Australian companies release their earnings reports every three or six months and if they beat or miss forecasts by a wide enough margin, they can make a direct impact on the index.

The more equities that release reports around the same, particularly if from large-cap stocks or sectors, the greater the impact it can have on the ASX 200.

Seasonality and the ASX 200

The term ‘seasonality’ or ‘seasonal’ to markets refers for the tendency of a market to outperform or underperform over certain periods of the year. Commodity crops are an obvious example as the weather has a direct impact on their yield, which is of course dictated by the predictability of the four seasons.

Yet equity markets can also show seasonal patterns which warrant consideration. That said, they are not a roadmap to the future as they simply showing an average of past performance. But if history shows a strong tendency for a market to be strong or weak and this lines up with a technical or fundamental view, it can be useful information for the investor or trader to have.

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Sell in May and Go Away:
This is a well knows adage from Wall Street which gets thrown around each year, usually around April. The saying suggests it may be better to sell (step aside) from equity markets around May and go away (presumable on vacation). There have been many tests over the years to see if it performs as a short-selling strategy, although its success has been varied. However, for the ASX 200 there may be some truth to it as it tends to close lower in May, June, August and September.

Santa’s Rally:
This seasonal phenomenon refers to the tendency for equities to rally throughout December. Potential reasons to drive the rally are fund managers squaring (closing) positions for the year, reinvesting bonuses, or Wall Street is just in a good mood as they head towards the Christmas break.

Like all seasonal pattens, its success depends on whether an external shock is does not materialise to override the pattern. So, it is best used alongside other forms of analysis as opposed to making the assuming it will just play out like it did in the past.

That said, the ASX 200 has closed higher in December (on average) over the past 30, 15, 10 and 5 years.

Monthly-Close Statistics for the ASX 200:

Between January 1992 and December 2019 (28 years)

  • April and December produced the highest average monthly returns 2.34% and 2.05% respectively. (Although July has been the most bullish month using the 10 and 15-year average)
  • December and April had the largest win rates (bullish monthly closes) of 75% and 74.1% respectively
  • June is the only month to have a win rate below 50% (at 42.9%, or bearish closes 57.1% of the time)
  • Out of the 12 months, 5 are typically bears: May, June, August, September and November
  • May and September produced the most bearish average returns of -0.73% and -0.56% respectively

Why Trade the ASX 200?

  • Trade long and short
  • Suitable for intraday trading through to longer-term investing
  • Trade a broad view of the Australian economy
  • Hedge an ETF or a portfolio of Australian equities
  • Can be used as a proxy for risk
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Trade long and short
Markets go up and down, so traders should be able to trade in either direction. The ability to trade long or short the ASX 200 allows traders to speculate on rising or falling markets. Moreover, they can fully hedge their open position and eliminate the margin requirements for both positions, by opening a new position of equal vale in the opposite direction to the first.

Suitable for intraday trading through to longer-term investing
Intraday trades could use economic data and real-time news to seek pockets of volatility. Swing traders could use technical and fundamental analysis to try and capitalise on price swings. Longer-term investors could seek to capitalise on the longer-term bullish bias equities tend to offer.

Trade a broad view of the Australian economy
Like all economies, Australia’s has its ups and downs. And the ASX 200 is an ideal trading instrument to speculate on the current state and future expectations of its economy in bullish or bearish markets.

Hedge an ETF or a portfolio of Australian Equities
Investors who hold a selection of Australian equities could use an ASX 200 CFD to hedge their portfolio. This is a useful option if they want to mitigate risk without closing their positions, as it allows them to ride out a spell of anticipated volatility and hopefully stick with the trend until volatility subsides. Moreover, the low margin requirements of our AUS200 CFD makes this hedging vehicle a relatively affordable option compared to an equivalent futures contract.

The ASX 200 Can Be Used as a Proxy for Risk
Appetite for risk, or risk aversion can be directly seen on equity markets such as the ASX 200. Whether it’s a global or domestic driver, the switch between risk-on or risk-off can provide pockets of volatility for traders to seek opportunities.

Why Trade the ASX 200 with FXTRADING.com?

  • Regulated broker based in Sydney, Australia
  • Trade the ASX 200 around the clock
  • Unrestricted trading environment
  • Leverage up to 100:1
  • Institutional grade liquidity
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ASIC regulated broker based in Sydney, Australia
FXTRADING.com are based in the capital of Australia’s financial hub and regulated by the Australian Securities and Investments Commission.  

Trade the ASX 200 Index Around the Clock
The official trading hours are between 10am to 4pm, Monday to Friday.  Yet our AUS200 CFD allows traders to enter and exit positions for over 20 hours a day, 5 days a week.

Unrestricted trading environment
With no dealing-desk intervention, STP (straight through processing) and lightening fast trade execution, our trading infrastructure is the ideal place for scalpers and high-frequency automated traders.

Leverage up to 100:1
Higher levels of leverage means lower margin requirements to enter the trade, allowing traders to keep further away from a margin call or portfolio managers to increase their net exposure.

Institutional grade liquidity
Having access to top-tier liquidity providers allows us to offer fast execution and competitive spreads to large institutional traders.

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