Trade the CAC 40 Online

Trade the CAC 40 with raw price spreads and fast trade execution

Trade France’s premier stock market index, the CAC 40 via our FR40 CFD. Enjoy deep liquidity and fast trade execution from our top-tier liquidity providers, and tight spreads and zero commission across multiple devices with MT4.

A Primer on the CAC 40

Known domestically as the CAC Quarante, the CAC 40 is France’s prime stock market index.

  • Launched over 20 years ago
  • The CAC is a Market-Capitalisation Weighted Index
  • Includes 40 ‘relevant’ stocks
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Launched over 20 years ago
The CAC was officially launched on the 31st December 1987, which makes it over 20 years old. Interestingly this is just two months after “Black Monday” when stock markets crashed in October 1987.

Using OECD’s measure of a recession, the CAC has traded through 8 recessions since inception and has survived to tell the tale.

The CAC is a Market-Capitalisation Weighted Index
As with most of its peers, the CAC 40 is market-cap weighted, so shares with a larger market share create a larger impact on CAC than smaller-cap stocks. This means CAC traders would be prudent to monitor some of the largest stocks on the index to better assess the overall strength or weakness of the index.

As of July 2020 the top 5 stocks by market-cap in the CAC are:

  • Louis Vitton
  • L’Oreal
  • Sanofi
  • Total
  • Hermes International

Includes 40 ‘relevant’ stocks
Where the CAC differs from other indices is that a panel individually reviews shares to be included within the index, alongside using a formula to create the index. This is unlike its peers which typically use a purely mathematical approach to form their index.

Each quarter the index is reviewed by Conseil Scientifique (an independent Index Steering Committee) to see of any adjustments are required to the index. They rank the top 100 stocks on the Euronext Paris by 12-month share turnover and market capitalisation, and from this list they select 40 which are likely to form a “relevant benchmark for portfolio management”.

How Can You Trade the CAC 40 Index?

As an equity index is made up of a collection of stocks and simply tracks their performance, the index itself is not directly tradeable. So, to speculate on its movements, traders must access derivates of the CAC such as futures or CFDs (contracts for difference). FXTRADING.com allows traders to speculate on the CAC 40 via their F40 CFD.

By using a CFD, a trader is not becoming an owner of the underlying market or entering into a contract to take delivery of the market in future. Yet they are still able to access live market prices and trade both long (bullish) and short (bearish) positions. This is a luxury not always possible with futures markets if they enter ‘limit up’ or ‘limit down’, where trading is restricted and can prevent traders entering the market or exiting a current position.

Moreover, with higher levels of leverage available on CFDs, margin requirements (collateral to open a trade) a much lower than that of a futures market.

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Long example: CAC 40 (F40)
A trader buys 10 contracts of the F40 CFD at 5,000

  • If the price rises to 5,500 the trader could exit for a profit around €5,000
    • (# contracts x contract size) x (exit price – entry)
    • (10 x 1) x (5,500 – 5,000)
  • If the price falls to 4,750 the trader could exit for a loss around – €2,500
    • (# contracts x contract size) x (exit price – entry)
    • (10 x 1) x (4,750 – 5,000)
  • A 1% margin requirement with 100:1 leverage requires €500 of capital
    • (# contracts x contract size x price) / leverage
    • (10 x 1 x 5,000) / 100

Short example: CAC (F40 CFD)
A trader sells 10 contracts of the F40 CFD at €5,000

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

 

Costs associated With CFDs

Spread:
The spread is a variable rate which is simply the difference between the bid and the ask price. Applied at the point of trade entry, the spread is a minor transaction cost to enter a trade. This means that new positions will initially show a minor balance, as this is the cost of the spread.

The thickness of the spread is dictated by the amount of available liquidity (buyers and sellers) and tends to be thinner (cheaper) during periods of higher trading activity. However, news and economic events can also impact the spread.

The spread can be viewed within MT4’s market watch window and the deal ticket.

In this example, the spread is 1 index point (equivalent to €1).

F40
Bid / Ask:
4,989.00 / 4,990.00

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

F40
Bid / Ask:
5,000.00 / 5,002.50

Swaps:
At the end of each day a swap is calculated and applied to open positions. They can either be a debit or a credit to the floating P&L of the trade, depending on whether the trade is long or short and what the underlying interbank rate is.

As the CAC is traded in euros (€) and its stock exchange in the Eurozone, the ECB’s (European Central Bank’s) intermarket rate is used as the basis for swap calculation. Like the spread, swaps change daily. To view swaps, go to the “Market Watch” window within MT4, hover your mouse over the F40 CFD, eight click and select “Specification”.

Market Drivers for the CAC 40

  • Global Equities
  • European Central Bank (ECB)
  • Economic data
  • Large-cap equities
  • Risk-appetite
  • Earnings Season
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Global Equities
Stock market indices across the globe tend to share a positive correlation overall. That is not to say they move in the same direction day in and day out, but over the long-term trends tend to follow one another. CAC traders would therefore also keep an eye on benchmark indices from US, Europe and Asia such as the S&P 500, Nasdaq, DAX, FTSE, ASX200 and Nikkei for a broader view of sentiment.

However, if domestic news or data converges from global trends strongly enough it can be enough for the index to break this correlation and trade independently for a period of time. But, more often than not, they tend to track one another over the medium to long-term.

European Central Bank (ECB)
The ECB can have a direct impact on equity markets if they change their monetary policy, or just signal they may be about to. Historically low interest rates and loose monetary conditions have been supportive of stock markets, whilst higher interest rates and tighter monetary conditions have weighed on equity prices.

As France is in the Eurozone, the ECB dictates policy for France so the CAC 40 is sensitive to what the ECB say and do in official meetings and public speeches. Whilst ECB have a few tools at their disposal, quantitative easing (QE) has proven to be very supportive of the stock market and has helped the CAC rally, even during times of weak economic data. If the ECB is injecting liquidity into the markets, it becomes easier for investors to buy and sell financial assets such as equities. A recent example of this was in March 2020 during covid-19 lockdowns when central banks poured trillions into the financial markets and equities rallied in the face of unprecedented weak data.

Economic Data
Stock market traders are fixated on growth (GDP) and its potential, as an expanding economy is typically supportive of equity prices as a whole. To decipher whether GDP is more likely to expand or contract they follow macro-economic data on a daily basis, to build a picture of an economy’s strength.

This makes the CAC 40 sensitive to economic data released from France and Europe. Key data points of interest are leading indicators such as business surveys (PMI’s), consumer surveys (consumer sentiment) for France and Europe. If data is generally beating expectations, it could be assumed that GDP will strengthen in future and support index prices. Whereas if economic data is weakening overall, it could be assumed GDP is to contract as weigh on share market prices.

Large-Cap Equities
As the CAC is a market-capitalisation weighted index, the larger stocks by market share have a larger impact of the index performance. Therefore, CAC traders would be wise to keep an eye on the performance of the top 5 or 10 stocks in the index to aid their analysis for the CAC overall.

Risk-Appetite
Sentiment for financial markets oscillate between two opposite states of “risk-on” and risk-off”, and this can be seen on market pricing. During bouts of risk-on, investors could be feeling confident of the future and tend to take on more risk and increase their exposure to stock market indices and high-yielding currencies. Potential triggers for risk-on include strong economic data, strong earnings, a resolution to geopolitics or simply that tensions from risk-off has cleared.

However, if investors are fearful of the future, a flight to safety can ensue which can see them sell riskier assets such as equities and high-yielding currencies and buy safe-haven assets such as gold or bonds. Potential catalysts for risk-off can include geopolitical tensions, weak economic data, weak earnings, just to name a few.

Earnings Season
Companies report their earnings to the public, which allows investors in these companies decide whether they want to keep or sell their holdings or participate in that company. At the individual level, a company report would not usually be expected to have a huge impact upon the index in which it trades. Yet if we have multiple stocks missing or beating expectations around the same time, then this will show up on the index performance.

Earnings season refers to when a cluster of equities release reports each quarter, and it would be wise for an index trader to at least be aware of these data as they can provide volatility for the underlying index. Traders can view key dates on freely available earnings calendars on the internet.

Seasonality and the CAC 40

Equity markets tend to perform well in certain periods of the year, which is a tendency called seasonality. As seasonal patterns are merely an average of historical performance they should not be looked at as predictive as such, but it can be useful information to know and to align with other forms of technical and fundamental analysis.

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Santa’s Rally:
Around December each year stock markets have shown a tendency to perform well as we head towards the Christmas break. Since inception in 1987, the average return for the CAC has been 1.4%, so there does appear to be some truth in this well-known adage. However, December’s haven’t always been so great for the broader market as the AC has also seen large losses in December, such as December 2002 and 2015 where the index fell -7.9% and -6.5% respectively.

Sell in May and Go Away:
This well-known saying from Wall Street suggests investors are better to step aside from equity markets around May as returns are expected to be sanguine. However as for the CAC, over the past 30 years is has produced a negative average return in May and June of -0.7% and -1.2% respectively. However, before we can assume a good strategy would be to short the market at the end of April, it should be remembered that these returns completely ignore the volatility of the monthly charts.

Monthly-Close Statistics for the CAC:
Between January 1990 and December 2019 (30 years)

  • 8 out of 12 months (66.7%) posted positive returns, on average
  • April and October posted the highest average returns at 2.4% and 1.9% respectively
  • October and April had the highest ‘win rates’ (bullish closes) at 76.7% and 73.3% respectively
  • 4 out of 12 months (33.3%) posted negative returns, on average
  • September and August were the most bearish returns on average, at -1.8 and -1.5% respectively
  • August and June had the lowest ‘win rates’ (bearish closes) at 66.7% and 60% respectively

Why Trade the CAC 40?

  • Trade long and short
  • Low margin requirements
  • Trade a directional view of France or Europe’s economies
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Trade Long and Short
The ability to trade long and short is an advantage to CFD traders not always possible on futures markets. Markets trade up and down and CFDs allows traders to speculate on bullish and bearish markets.

Low Margin Requirements
FXTRADING.com offer generous levels of levels of up to 100:1 for their stock market indices. This means that margin (collateral to open a trade) can be as little as 100th of the price of the underlying market, making index trading accessible to traders of all levels.

Trade a directional view of France or Europe’s Economies
If a trader is bullish or bearish on France’s economy, the French CAC is the ideal trading instrument to express their view. For example, if economic data suggests France could outperform the rest of Europe, they could initiate a long (buy) position on the F40 CFD in hope that it will appreciate in value. Or if fundamental data suggested growth was to weaken, they could look to short (sell) the F40 CFD. Of course, the trader would also have to factor in the timing element and risk management along with a suitable holding time to increase their chances of success.

Why Trade the CAC 40 with FXTRADING.com?

  • Competitive Spreads
  • No commission
  • Lightening quick trade execution
  • Trade the CAC around the clock
  • Unrestricted trading environment
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Tight Spreads
FXTRADING.com provide some of the tightest spreads in the industry as we have access to top-tier liquidity providers. This makes us an ideal broker for day traders where transaction costs such as the spread are an important factor for their success.

No Commission
Our Pro and Standard Accounts offer tight spreads and zero commission to enter and exit the trade.

Lightening Quick Trade Execution
We have invested heavily into our trading infrastructure so we can offer fast execution regardless of market conditions, and tight spreads from top-tier liquidity providers.

Trade the CAC Index Around the Clock
Whilst the official stock exchange for the CAC (Euronext Paris) operates between 09:00 and 17:30, our CAC 40 CFD (F40) can be traded for up to 23 hours a day. This makes it tradable for all regardless of the trader’s location and time zone.

Unrestricted Trading Environment
FXTRADING.com welcomes all trading styles and allows all EA’s (expert advisors). This makes our platform the ideal trading environment for scalpers, automated traders, HFT traders (high frequency traders) of all sizes.

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